China GDP – It’s a case of stable vs slowing

As is tradition, China’s National Bureau of Statistics releases almost all of their key economic data at once, so here’s a quick run down on the key charts and trends.  We covered this and more in theWeekly Macro Themes – China Special Editionthis week.  Major data summary: GDP 6.8% y/y (consensus 6.7%, previous 6.7%), Industrial Production 6.0% y/y (6.1% expected, 6.2% previous), Fixed Asset Investment 8.1% (8.3% consensus/previous), Retail Sales 10.9% (10.7% consensus, 10.8% previous).  The main takeaway is that the data has improved slightly in some areas compared to earlier this year/late last year, but overall it’s a case of stable vs slowing.

The standouts are the turnaround in nominal GDP growth (thanks in large part torebounding commodity prices), the rise in state driven investment, and ongoing credit growth and pump priming. Indeed the chart below is probably one of the “charts of the year” for China as it shows how state investment has been ramped up to offset the collapse in private investment (which was a combination of falling factory investment and contractingreal estate investment).  Interestingly enough though, there are what appears to be green shoots in private investment…

Overall, I can confidently say that China’s economy is looking better now than this time last year (that’s based on a broad spectrum of data, not just the official stats!).  Lagged effects of stimulus and the property price recovery along with an expected improvement in exports should help underpin growth in 2017.
Stable growth will be key for China in 2017 with a number of risks e.g. teetering property price cycle, the weakening Renminbi, the perennial growth/stability vs reform tension, the traditional 5-yearly leadership transition in China, and of course, the leadership transition in America.
China still faces significant structural challenges and systemic risks that have built up over the years, but it’s much-predicted and non-delivered day of reckoning has yet to come.  Will it come this year?  My bias would be to say no because a number of positive forces i.e. stimulus and a better global growth outlook, are more or less already baked in and will help support growth, the other point is that when you have a leadership transition you kind of need/demand things to be stable.
The main factor that would change that view would be an external shock or a collapse in property prices/the currency.  We are closely watching these risks and will update our subscribers the moment anything material changes.
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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.