Chinese shares were up overnight as GDP and retail figures beat expectations, helping to hide the fact that economic growth levels fell below 7% for the first time since 2009.
China’s economy expanded quicker than economists forecast in the 3rd quarter as the services sector propped up the world’s second-largest economy. This suggests that monetary and fiscal stimulus is keeping Premier Li Keqiang’s 2015 expansion target within reach ahead of his historic UK visit today, the first by a Chinese Premier is 10 years.
GDP rose 6.9% in the three months through September from a year earlier, the National Bureau of Statistics said this morning. Economists’ estimates were of only 6.8%. That being said it was still the slowest quarterly expansion since the first three months of 2009, based off previously announced data.
Even in slowdown, however, China continues to grow at a pace that is envied by other major economies. China’s economy is nearly twice the size it was just 6 years ago, illustrating that even at lower growth rates it remains a major engine for global consumption and production.
The pace of retail sales year on year ticked up slightly to 10.9% in September v 10.8% in August. Economists were forecasting 10.8%. This pick-up in consumption demonstrates the resilience of the Chinese consumer, even as the traditional engine of its economic growth stalls.
Industrial output decelerated to 5.7%, which is the slowest since March, from 6.1% in August. Economists had anticipated a slowdown to only 6 per cent.
The decline in industrial activity, by contrast, reflects the same trends in overcapacity that have driven producer prices into deflation for 43 straight months.
Economists expect the Chinese Central Bank to cut interests rates at least once and further reduce banks’ required reserves before the end of the year. Past efforts, including five interest-rate cuts and several rounds of reductions to the reserve level since November, have failed to reboot growth.
The Chinese economy has been responsible for roughly a third of global growth over the past 7 years. This month, the IMF lowered its 2015 global growth forecast to 3.1%, down from a 3.3% estimate in July, citing China as well as weakness in Europe & Japan and the slowdown in commodity producing countries as the cause.
Beijing has approved more than 200 rail, highway, energy and sewer projects since January worth more than 1.8 trillion yuan [$283.8 billion] and has urged banks further to step up lending for infrastructure.
Mr Li, who is being accompanied by a large business delegation on his trip to the UK, is expected to formally agree commercial deals and investments worth up to £18bn in areas such as energy and finance.
This fact alone serves to emphasise that the Chinese economic slowdown is not expected to last too long and is certainly not dampening their appetite to invest and help in the provision of future global prosperity.