China’s GDP growth holding up this well is surprising, finds Craig Botham, emerging markets economist at Schroders. However, he noted that increased investment was responsible for the bulk of growth, while consumption declined.
“On an industry basis, the primary sector, or “Old China”, has been accelerating for much of the year. Investment of course is not always wasteful, and even in a service-driven economy is an important part of the growth mix. But in China’s case, the data has shown that for much of the year it has been the state, rather than the private sector, driving the investment figures,” argued Botham.
China Post Global, an asset manager partly owned by the Chinese state, prefers to highlight the positive aspects of the strong growth figure, arguing “it will reinforce international investor confidence in the Chinese economy”.
“Our view on these figures is that policy makers are successfully balancing short-term growth and the long-term structural changes required for sustainable growth. Policy makers continue to demonstrate their commitment towards ensuring stability during China’s transition from a manufacturing economy to a consumer demand-driven one,” said Evie Lamprou, head of European distribution at China Post Global.
Botham finds some reassurance in the fact that relatively little of the investment growth was focused on state-led infrastructure, admitting that “some of this is likely to be productive investment”. “But even here it seems likely that this is more cloud than silver lining, given the booming property market,” he added gloomily.
Despite the worrying fundamentals, Botham expects only a marginal slowdown in 2017. “We are sceptical that real cuts to spare capacity industries will be undertaken ahead of the Party congress towards the end of 2017, given the importance of the event to President Xi. That we expect a slowdown at all reflects recent policymaker statements on the need for stability over growth, but we have heard these noises before and seen only the slightest of course corrections.”