(Yicai Global) Oct. 19 -- On Monday morning data for China’s Gross Domestic Product (GDP) was released. The data shown that on average across the first three quarters of the year China’s GDP had grown 9.8%. It had measured 4.8% in comparison to the same quarter last year, missing expectations, and 0.2% as a “quarter upon quarter” basis.
Industrial output also missed expectations, but retail sales also grew higher than forecasted, as well as export data previously having also surpassed predictions. The data nonetheless sparked claims from the mainstream media that it shows China’s economy is “slowing down” citing disruptions to the Real Estate Sector and the commodity crisis.
Despite this, China’s economy is still on course to likely meet annualized forecasts of around 8%, putting it on par to be one of the world’s fastest growing major economies this year. Although there are several disruptions, lower growth numbers are partially attributed to China’s recovery having peaked earlier and sooner than other economies, returning to normal levels of growth, as well as the government having relied less on stimulus to rebuild the economy in contrast to others. As a result, once these various challenges are mitigated, the picture is fairly optimistic.
Numbers can sometimes be deceiving. GDP numbers are not absolutist, but comparative and relative because in order to measure it, we have to compare it to a certain period of time. There are many ways of looking at them. Because China’s economy had suffered a setback due to the covid-19 in the first part of 2020, economic data comparing China’s current economy with that period creates the impression that it “surged” when in reality it came from a lower base, hence January’s data of 18%. Following this period, China’s economy soon recovered, and as a result the starting base for comparison becomes higher and higher, gaining the impression China’s growth was slowing down.
But that’s not what is happening. China’s growth appears to be slowing down only because it is further ahead than other countries in the global economy, therefore the average base of comparison resets. By the third quarter last year, China’s recovery was so hastily underway that the current data only reads as 4.8% year on year, yet the average as a whole can also be read as 9.8% year on year. Therefore, logically speaking the fourth quarter will be even lower, but that does not mean China’s economy is experiencing problems, only that it is returning to a normal trajectory of around 5-6% per annum. Do the media for one, truly expect China to grow 18% the full year-round?
Therefore, these numbers can also be misleading in the story which they tell. China’s economy is not grinding to a halt. There of course have been some circumstantial disruptions, yet their impact is ultimately exaggerated. China’s exports and retail sales, two key indicators of growth, have bucked the trend of a “recovery surge” and illustrated that the underlying stability brought to China by the zero-covid approach is paying off. In addition, regarding the energy crisis, China is firing all guns blazing in dramatically upping its output and procurement of coal, as well as accelerating its imports of liquid natural gas from Russia, the United States, Qatar and other countries. It is also adjusting prices to offset the commodity prices to power companies.
Concerning Evergrande and Real Estate, the People’s Bank of China has also signalled that the situation will be contained, and the outcome is akin to a controlled demolition, which calmed markets and led to shares in property developers bouncing back on Monday. The bank also noted that the problems faced by the group “are an individual phenomenon” with most of its holdings in physical assets as opposed to finance, and that property prices remained stable, with most real estate businesses “operating stably and have good financial indicators, and the real estate industry overall is healthy.” The situation will not produce a crisis as the western media insist.
Given all of this, China’s economy is in reality in a healthy position. It faces some headwinds, but one should not misrepresent the fact it is coming to an end of a robust recovery as a “slow down” of sorts, this is a misleading talking point. Compensating for the covid-19 pandemic, it has on average across the two years grown by 5.2% and thus is “on track” as opposed to “coming off the tracks”. But to nobody’s surprise whatsoever, the mainstream media love nothing more than a good negative angle pertaining to China.