One of the most boring numbers in economics just got interesting again. Chinese output grew at 6.7 per cent in the second quarter, down a tick from earlier this year. The number has been uncannily, and implausibly, steady, making it all too easy for international investors to shrug off. A trade war and debt management campaigns mean they should start paying closer attention.
It was apparent that China’s $12.5-trillion economy was slowing based on a range of figures for April and May, including important measures of investment and retail sales. The GDP data released on Monday confirm the softening outlook. Expansion in the People’s Republic, which clocked in at nearly 11 per cent this time a decade ago, now usually budges no more than a tenth of a percentage point at a time. US growth, by contrast, can fluctuate by well over a percentage point between quarters.
Downplayed
The latest slippage is a good reminder to keep watch. US President Donald Trump’s tariffs on Chinese imports are escalating. An initial round on $34 billion of imports may not have much of an impact, but if they are extended to a further $200 billion, as threatened, it could amount to 0.4 percentage points of China’s growth, HSBC analysts estimate.
Government officials are keen not to reveal any weakness. State media, for example, were ordered to downplay any link between the mainland’s sagging equity markets and trade, according to a government document from last month published by China Digital Times .
Credit growth
Foreign policy-makers and investors also may look for additional signs of Beijing’s efforts to move corporate debt into more visible and ostensibly safer places. Outstanding loans from banks, which are mostly state-controlled, grew 12.7 per cent year-on-year in June as broader measures of credit growth fell short of what economists had been expecting. Off-balance-sheet shadow banking activity is feeling the pinch.
The question now is whether the Communist Party can hold its nerve and sustain the drive even as growth cools. Most forecasters expect some monetary and fiscal easing, but a faster slowdown could turn a modest tweak into a serious policy shift. That’s why fund managers will be hunting more closely for clues in GDP data that otherwise might have been neglected.