China’s release of GDP data on Wednesday is triggering a fresh bout of scepticism over the accuracy of Beijing’s statistics. The key question is whether the reported GDP growth rate of 7.4 per cent in the first quarter gives a misleadingly strong impression of the real state of the world’s second largest economy?
“In our view, the 7.4% YoY growth does not reflect the full scale of the economic slowdown in 1Q14, and the actual growth is closer to 7.0-7.2% YoY,” wrote Shen Jianguang, economist at Mizuho Securities in Hong Kong. Continue reading »
There is no doubt that emerging market (EM) investors have cheered up considerably of late. Following a torrid January and February, virtually all asset classes in the EM universe appear – on aggregate at least – to be gaining in value.
The bellwether stock index, the MSCI EM index, is up 9.6 per cent from its low on February 5. EM sovereign bonds are yielding an average of 5.51 per cent, down 0.37 per cent since January 1. Local currency bonds are, in many cases, producing stellar returns sharpened by windfall currency gains. Indeed, some EM currencies are among the world’s best performers, with the Indonesian rupiah rising 7.81 per cent, the Brazilian real gaining 7.3 per cent and the Indian rupee climbing 2.8 per cent so far this year. Continue reading »
Investment banks slashed forecasts for China’s GDP growth on Thursday after Beijing reported the biggest slowdown in investment for more than a decade and the slowest retail sales expansion for nine years. Confidence was further undermined by news that a well-known steel mill has failed to repay loans that came due last week.
Ting Lu, China economist at Bank of America Merrill Lynch, said the bank was cutting its first quarter GDP growth forecast to 7.3 per cent from 8 per cent and the full year forecast to 7.2 per cent from 7.6 per cent previously. Nomura Securities revised down its first quarter forecast to 7.3 per cent from 7.5 per cent previously but kept its full year prediction at 7.4 per cent. UBS revised down its full year forecast to 7.5 per cent from 7.8 per cent previously. Continue reading »
For many emerging markets, the most worrying aspect of Chinese economic statistics announced on Thursday is that they reveal a slump in the construction spree that has sucked in vast quantities of metal ores and other commodities from Latin America, Africa, Russia and parts of Asia.
But which EM economies are most vulnerable as China throws the commodity cycle out of joint? Craig Botham, emerging markets strategist at Schroders, has come up with a vulnerability ranking (see chart) that identifies the exposure of EM countries to a slowdown in net non-food commodity exports to China. Continue reading »
A gloomy outlook for key Chinese economic data to be announced on Thursday is prompting analysts to predict that Beijing may take steps to stimulate the economy to prevent GDP growth from falling too far below its target of “about 7.5 per cent” this year.
The shifting perceptions follow a downbeat forecast from the State Information Centre, a government think tank, which projected GDP growth in the first quarter of this year may come in at “nearly 7.5 per cent”, down from 7.7 per cent in the whole of 2013. It also said fixed asset investment – a key indicator of Chinese demand for metal ores, steel, cement and other inputs – would grow at 18.6 per cent in the quarter, down 2.3 per cent year on year. Continue reading »
When China’s premier was an up-and-comer in the provinces, he famously told US diplomats that he looked at indicators including electricity consumption and freight transport to gauge the true state of the world’s second largest economy. According to a Wikileaks cable, Li Keqiang said such figures were more reliable than the government’s own official GDP growth number.
Embarrassingly for the then premier, Wen Jiabao, the “Keqiang index” was thus christened and was subsequently used by economists to cross-check the GDP growth numbers revealed every March at the annual session of China’s parliament, the National People’s Congress. Continue reading »
So rarely does China’s official GDP growth target bear more than a passing resemblance to subsequent reality (see chart), that it might be regarded as a less than useful indicator.
This year, however, much is riding on which number – if any –Beijing announces as its GDP target for 2014 at the annual National People’s Congress (NPC), which convenes on Wednesday. There are several potential permutations, each of which may indicate very different policy intentions. Continue reading »
Just when world markets need them least, new signs of underlying economic weakness are emerging from China.
Data from China Confidential, an FT research service on China, show that the real estate market – one of the key 2013 engines of Chinese growth – is starting to sputter. Continue reading »
So, China’s gross domestic product grew by 7.7 per cent in 2013. Much media comment has focused on how this performance, by Chinese standards, is relatively lacklustre. It is, together with last year’s 7.7 per cent expansion, the lowest growth rate since 1999.
However, there is another perspective. A quick look at the International Monetary Fund’s list of countries’ GDP numbers shows that China grew last year by an amount somewhat smaller than the size of the entire Indonesian economy but larger than Turkey. Continue reading »
The 6th in our series of guest posts on the outlook for 2014 is by Michael Pettis
November’s Third Plenum proposed significant economic reforms to rebalance China’s economy and reduce its addiction to debt, in large part by reversing many of the processes that drove growth in the past three decades. Of course this potentially radical shift in China’s development model will make predicting economic performance in 2014 more difficult than ever.
And we have already seen how difficult reform is likely to be. The past four years were characterised by a stop-and-go process of decelerating growth, in which periodic attempts by the regulators to constrain credit caused the economy to slow sharply but, as policy makers backed off each time, both GDP and credit growth subsequently reignited, although at gradually declining paces. We will see this even more sharply in 2014, with a continued unstable balance between attempts to constrain credit growth and attempts to keep the economy from slowing too quickly. Continue reading »
By Ken Peng of Citi Private Bank
China must rebalance! Yes, everyone from President Barack Obama to your average Beijing taxi driver knows that. Around 48 per cent of China’s GDP is investment, just 36 per cent is household consumption, with government spending a bloated 13 per cent and net exports, 2 per cent. Whether through timely and painful reforms now or delayed reforms and disaster later, investment growth is expected to falter and consumption to be unable to pick up the slack.
But what if these basic assumptions are wrong? Continue reading »
He's behind you
FT readers will know that Latin America’s GDP growth is tied to the Chinese economy. If Chinese output dips, this usually reduces growth estimates for Chile and Brazil, owing to their high trade volumes. Lower Chinese demand for copper, soya and iron ore – among other goods – hits both economies.
Commentators see Mexico as a separate case. Mexico exports large amounts of manufactured goods to the US, just like China. Its economy is often thought to be little impacted by revisions in Chinese GDP figures.
Or is it? Continue reading »
By Leslie Young of the Cheung Kong Graduate School of Business
On Friday, China will release its third quarter GDP figures to wide scrutiny, given the country’s impact on the world economy. But what might be overlooked by the focus on GDP growth?
Additional insights can be found in the data for the growth of Gross National Income (GNI), which augments GDP by producer taxes and the net income paid to nationals. Continue reading »
After all the furore this month after Lou Jiwei, China’s finance minister, suggested the country’s growth target was 7 per cent – and not the official 7.5 per cent – Premier Li Keqiang has weighed in.
Li was reported by Xinhua news agency as saying growth would only be tolerated above… 7 per cent. Given that China’s growth targets in recent years have been more of a bar to surpass than a bullseye to hit, this sounds suspiciously similar to Lou. Never mind – stocks rallied at the news. Continue reading »
China’s economy is rebalancing away from investment and exports towards consumption. But with high debt levels and the need for reform, it is likely to lead to a continuing slowdown in growth and some short term pain. Citi’s Senior China economist, Shuang Ding talks to the FT’s Josh Noble.