UK lights can stay on as Chinese economy grows

Auspicious news from China, where George Osborne and Boris Johnson have this week both been proffering their begging bowls: the country’s economy grew by 7.8% in the third quarter – its first rise in growth for three quarters.

Let’s be honest, though: it was never going to be a disaster. The country has had some bad headlines – last year’s growth, for instance, which was 7.8%, it was its worst rate for 13 years. If growth drops below 7.6% this year, it will be its worst performance since 1990: economic growth has actually slowed for the last 11 of the last 14 quarters. But it’s all relative: over here, we’ll be excited if we achieve growth of 1.4% in 2013.

Still, you can see the reasoning behind any anxiety: when the global recession hit, demand from other countries began to fall and the Chinese government realised it was over-reliant on exports. Since then, it’s been trying to increase domestic demand to offset the fall in exports.

Earlier this year it introduced a ‘mini-stimulus’, setting up a railway development fund and suspending VAT and turnover tax for small businesses with monthly sales of less than 20,000 yuan (£2,125). It’s also helping to boost that export market by simplifying customs procedures and making it easier for small businesses to sell overseas.

But a raft of monthly data for September suggests the stimulus has had a mixed impact: factory output increased by 10.2%, down from 10.4% in August, while retail sales grew 13.3%, slightly down from August’s 13.4% rise and lower than analysts’ 13.5% expectation. Of course, the effects of the stimulus will take a little longer to be felt (the VAT cut, for instance, was only introduced in August). So the country is now playing the waiting game.

As Tim Condon from ING pointed out, while the effect of the mini-stimulus was probably less than hoped, it was ‘enough to keep [China] going at this pace in the fourth quarter’.

And it turns out Osborne and his Chinese counterparts had plenty in common: the other major economic concern is of a property bubble. Prices in the country have risen for eight months in a row, despite ‘cooling measures’ introduced by the government several months ago. Now analysts are warning that growth is being driven by the property market, rather than increased consumer demand like the government wanted. Some, like IHS vice-president Tony Nash, reckon it could pose ‘a serious threat to China’s growth’.

Excellent timing, then, for Osborne to announce that he’s signed a memorandum of understanding that could eventually give China a ‘majority stake’ in our nuclear power industry. If there’s one thing the UK needs, it’s for its energy sector to rely on funding from a country which itself is reliant on external forces. If just one card moves, the whole stack could come toppling down…