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Confusion Looms Over Recent Chinese Growth

Stockholm (Ekonamik) – The Chinese economy grew to CNY 21.3 trillion in the first quarter of 2019, according to the country’s National Bureau of Statistics. The details left us and other analysts a bit perplexed, which is not unusual for Chinese GDP data.

The headline value, equivalent to US$ 3.18 trillion, represents a 6.4% increase year-on-year. Sectorally, agriculture, manufacturing and services represented 4.1%, 38.6% and 57.3% of the country’s total economic activity, and contributed 2.7%, 6.1% and 7% to GDP growth, respectively.

New technologies were at the forefront of economic growth, according to the press release. “New products registered fast growth, with the output of devices for mobile communication base stations, urban rail vehicles, new energy automobiles and solar cells growing by 153.7%, 54.1%, 48.2% and 18.2% respectively in the first quarter.”

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Final consumption, investment and net trade represented 49.8%, 47.7%, 2.5% of GDP, respectively. Although the report does not disclose it directly, the logic of national accounts suggest that government spending during the first quarter was worth CNY 847 billion, equivalent to 4% of GDP. The statistics bureau reported that investment and net trade grew by 6.4% and 75%, respectively. Final consumption expenditure is reported to have contributed 65.1% to GDP growth.

The announcement beat market expectations of 6.2% GDP growth, according to Reuters. “In light of the strong Q1 results and the likely trade agreement between the US and China, we have decided to revise up our Chinese GDP forecast for 2019 to 6.3%, from 6.1% previously.,” commented Dong Chen, Senior Asia Economist at Pictet & Cie. “The better-than-expected Q1 results suggest that the effect of the government’s stimulus may have materialised earlier than we had expected (at least in part of the economy).”

“With North American yield curves almost normalizing, equities flirting with record highs, and even commodity prices showing some spark, fears of a serious economic downturn have faded, at least for now,” commented Douglas Porter, CFA, Chief Economist at BMO Capital Markets impressed with the data release. The new Chinese growth data was another data point in this new trend. “With that milder backdrop, the economic data also are turning a corner. The first hints came from financial markets and sentiment surveys that conditions were improving, and now the hard economic data are beginning to flag that reality. This week saw a better-than-expected 6.4% y/y print for China’s Q1 GDP; unchanged from Q4, but near the top end of this year’s growth aspiration of 6.0%-to-6.5%. Industrial output and retail sales were also solid in March, each up more than 8% y/y.”

However, this industrial data concerned Craig Botham, Senior Emerging Markets Economist at Schroders, who noted that “for us the difficulty lies in reconciling weak domestic demand as evidenced by contracting imports with the story told by surging industrial production. (…) Either imports or industrial production must therefore be “wrong” in their signal on domestic demand.”  He concluded that the “alternative explanation then is that something is amiss in the industrial production data,” before adding, “we are somewhat sceptical of the sudden spring in China’s step, and see a strong possibility that some of this strength in production is undone next month.”

At the same time, the reported growth is consistent with Aberdeen’s expectations at the beginning of the year. Nevertheless, we are always mindful of China’s history of GDP data manipulation when considering single data points.

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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