That’s it. Someone’s opened the seventh seal and the economic apocalypse is upon us. China has only managed 7.3% annualised GDP growth for the third quarter. Its manufacturing output grew only 8%. Its retail sales were up a mere 11.6%, and fixed asset investment growth dropped to barely 16.1%. And, worst of all, most of these marginally failed to meet analysts’ expectations!
Scary stuff. But before you make your way in an orderly fashion to the nearest bunker, you might want to pause for a little perspective. Yes, China’s economic growth has slowed, but 7.3% isn’t exactly sluggish and manufacturing actually bounced 1.2% from its low in August. And, while this may mean the People’s Republic will miss its annual GDP target of 7.5%, it doesn’t mean it’s in for some sort of cataclysmic collapse. Rather than contracting, China’s economy could actually be in the process of rebalancing.
Rapid growth in China helped buoy the world economy during the recession, but it was built on investment and fuelled by debt. Neither of these is healthy. The fact that fixed asset investment growth dropped to 16.1% from 20% in 2013 while retail sales remained more of less the same (growth was down by 1.3%), is perhaps a sign that demand is finally beginning to catch up with supply. Indeed, consumption now accounts for a record 48% of China’s GDP. To put things in perspective, it’s around 67% in the decadent West.
If that is happening, and it’s too early to know for sure, then this would be very good thing for the global economy in the long run. British exporters in time will benefit from Chinese shoppers as much as Chinese factories. Just as importantly, a China that’s less supply-heavy will be less exposed to deflation or a dreaded ‘hard landing’, reducing the risk of another global crash.
China's GDP growth may be slowing, but it's hardly sluggish. * Q1-Q3
Of course, it’s quite possible that the slight dip in China’s economy is less to do with much needed structural changes and more to do with the downturn in its property market, which represents a large chunk of overall investment and which has certainly suffered from a glut in supply.
Whichever it is, it’s not worrying the Chinese government, which has described the economy as ‘operating within a reasonable range’. This may not sound enormously reassuring (perhaps we should lend them some of our spin doctors?), but the important point is that the People’s Republic isn’t taking any drastic action, such as fiscal stimulus, to get things moving, because it knows pursuing maximum growth isn’t the smartest strategy any more. Rather, it's taken more modest steps such as relaxing rules on home purchases, cutting certain interest rates to lenders and injecting cash into its banks.
Any kind of slowdown in China will obviously be tough on those industries that were relying on growth there driving up commodity prices, for instance, but all things considered this is no time to panic. China’s numbers are still strong (and a whole lot stronger than ours), and there are signs of a new maturity in its relationship between consumer and producer. So you can just put the tins of baked beans back on the shelf now.