China GDP came out at a good sounding despite being below market expectations.
Market had been hoping for 7.3%, but this is just a failure in understanding of the long-term shift that has already occurred in the China economy.
The China economic miracle is done. It is out of the box. Achieved. Now the China objective is maintaining sustained robust economic performance, rather than shooting for the moon. Though its space agency is doing that.
The 6.3% is not the current reality of China’s economic state either. The economy is actually likely performing at a more modest 4.6% level.
My forecast since Covid has always been that China would settle into a one to three decade growth trajectory of 2% to 5.5%. A 6% may be seen on occasion, but it is not really where the world’s second largest economy will be comfortable going forward.
To get a look at the real economic pace of the moment, you really need to step outside the base distortion effects of lockdowns and examine the quarter on quarter growth rates. Q1 2.2% The latest Q2 growth rate just 0.8%. Some slowing was understood and anticipated post the post-lockdown boom.
My estimate of where the China economy is truly travelling at the moment is approximately 4.8%, or a little lower. A significant slowing, but not falling off a cliff either. It is taking data series around the world quite a while to stabilise post pandemic upheavals and volatility.
Remember, all such data are only mere survey estimates. Hence the volatility in all economic data series around the world even in normal times. Often people make the mistake of thinking such data releases accurately reflect the real world. They are a guide at best, and a volatile one at that. They are not the real world.
It is entirely reasonable, though not quite of the hype in either direction some would have us believe, that China is growing in the mid to high-4s at the moment.
This is by no means anything to be concerned about. It in fact reflects fantastic growth for a truly sophisticated, mature and modern consumer industrial economy.
Furthermore, exports have been in decline and this is more a function of the state of western economies at the moment, than it is a reflection of China’s performance.
This is also why authorities are supportive, but not too keen to add too much stimulus to the economy at this point. While many in the west are quick to criticise, whether there be real cause or not, the fact is that China is now in the process of achieving a kind of sweet spot for its economic structure and performance going forward. A rather strong platform if you will. Now one of the world’s true super-powers, it must achieve a sustainable growth path. And this it is doing.
The ramifications for the rest of the world, particularly commodity producers means continuing wealth building opportunities but no more free ride. Exporters to China and investors alike, will need to work harder to do well there and maintain market share.
For China, it is going to be a case of moderate policy moving forward in what is really a best of both worlds scenario of domestic and external growth paths.
There are certainly problems to address. These include property market vulnerabilities, high youth unemployment and indebted local governments. None of these are a quick fix, but these imbalances will be worked through naturally with time as is typical of all major economies. They will require significant attention, but in a more nuanced manner than the provision of instant solutions.
China has more work to do, as we all do, but where the economy is at right now remains a big positive for the rest of the world too.
Just not the same backstop to the global economic growth outlook it was in recent decades.
Market commentary and analysis from Clifford Bennett, chief economist at ACY Securities
