16/04/2024

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five things to look for in the latest growth figures

five things to look for in the latest growth figures

China will on Wednesday release third-quarter economic growth data as Beijing chases a target of about 5 per cent this year.

Economists polled by Reuters expect gross domestic product to have expanded 4.4 per cent in the third quarter. That means China remains on track to claw its way to the 5 per cent target, following year-on-year GDP growth of 4.5 per cent in the first quarter and 6.3 per cent in the second.

While the target is one of the country’s lowest in decades, Chinese officials have in recent months ratcheted up financial stabilisation efforts across the property and banking sectors and shored up support for the country’s stock market and renminbi.

Dozens of China-listed companies also announced or conducted share buyback plans on Tuesday, following a raft of official measures taken to boost the ailing stock market.

Those measures highlight how the world’s second-biggest economy has failed to deliver on expectations for a post-pandemic rebound and how China’s economic planners are struggling to find drivers for growth.

Forecasts for next year’s GDP growth are being trimmed to about 4.5 per cent. Consumer and business confidence remains weak, while the war between Israel and Hamas in the Middle East is adding uncertainty to bleak external demand for Chinese exports.

Here are five things to watch out for in tomorrow’s release:

Consumer spending green shoots

Retail sales, which had been consistently poor this year despite the end of Covid-19 restrictions, finally showed green shoots in August, adding 4.6 per cent year on year.

With property market woes still undermining consumer confidence, however, Alicia García-Herrero, chief Asia-Pacific economist at Natixis, is wary of overstating the latest improvements to this key gauge of activity, especially as they compare to a period of lockdowns in 2022.

“You can’t fall from the floor,” she said. “Any number that looks slightly better [than the last] will be cheered, especially with what is going on in the world.”

This month’s eight-day Golden Week holiday probably helped to maintain some momentum — domestic tourism and revenue were near pre-pandemic levels — but that will not show up in Wednesday’s data.

Property woes

Lacklustre apartment sales and debt defaults by developers have become a persistent feature of a property market in a deep funk.

Beijing, which wants to avoid another unsustainable cycle of credit-driven investment, has been providing more support. That includes removing price restrictions on home purchases in some big cities. 

On the one hand, there have been signs that the stabilisation measures are having the desired effect. New home prices across 70 major cities were flat month on month in August.

But on the other, property investment in the first eight months of the year is down nearly 9 per cent. And markets are worried about potential contagion from a debt crisis at Country Garden, China’s biggest private sector developer, which has warned that it might not be able to meet all its offshore payment obligations.

Export outlook darkens

Soft international demand has become an acute pressure point for policymakers in Beijing, a stark change from much of the three years of closure during the pandemic when China’s exports helped prop up the economy.

Official data for July showed that China’s exports, in US dollar terms, had tumbled 14.5 per cent, the sharpest fall since the beginning of the pandemic. While still in negative territory, the picture has improved, with exports for September down 6.2 per cent year-on-year in September, from an 8.8 per cent decline in August.

Data for July showed that China’s exports, in US dollar terms, had tumbled 14.5%, the sharpest fall since the beginning of the pandemic © Yen Duong/Bloomberg

Trinh Nguyen, senior economist for emerging Asia with Natixis, pointed out that the Israel-Hamas war has complicated China’s external trading outlook. China, with close to zero inflation, appears insulated from fuel price increases, but geopolitical tension between Beijing and the west is worsening.

In an “increasingly bifurcated world” supply chains are already slowly diversifying away from a sole reliance on China, meaning that “things that would have been exported out of China are increasingly exported from elsewhere”, she said.

Questions over investment

Fixed asset investment, an important measure of capital spending in China, has been growing again in 2023, at just above 3 per cent in the first eight months of the year.

This partly reflects the state’s drive to boost investment in manufacturing, as it steers China away from an over-reliance on real estate and financial speculation.

Michael Pettis, a senior fellow with the Carnegie Endowment for International Peace think-tank, is concerned that the state might be steering investment into non-productive sectors as policymakers chase their annual GDP growth target.

“All that might be happening is that we’re shifting from one locus of non-productive investment — property — to another locus of non-productive investment. If you look at it systemically, the only reason to expand manufacturing is because of an expansion to demand. We haven’t seen that.”

Calls for stimulus and reforms

In the coming weeks Beijing will host the third plenum of the Chinese Communist party’s central committee, an important leadership meeting which has in the past been used to unveil economic reforms.

As China’s growth has slowed, economists — domestic and abroad — have called for Beijing to boost domestic consumption via transferring cash and assets to households, while also improving the country’s social safety net and establishing more progressive taxation and new financing tools for local governments.

Ahead of the third plenum, however, Bert Hofman, a former Beijing-based country director for China at the World Bank, expects more “tweaking, rather than major action”.

Taken together, the stabilisation and support measures announced over recent months appear likely to “do the job” of reaching the 5 per cent GDP target, he said.

“The policymakers are quite comfortable with the direction that the supply side of the economy is going,” Hofman added.

Additional reporting by Cheng Leng in Hong Kong