Mixed economic signals from China

Third quarter growth rises 7.3%, the lowest quarterly growth since the depths of the financial crisis in 2009

Markets around the world have been jolted by fears that slowing growth and deflationary pressures in Europe, Japan and other major economies could derail the United States. But the health of China, for decades an engine of growth, has emerged as one of the most significant wild cards in the global economy.

It is hard to be certain just exactly how the Chinese economy is faring, given mixed signals in the data.

Chinese inflation is at its weakest levels in nearly five years. Commodity prices are plunging. New home sales are declining. Foreign investment is contracting.

The overall economy, though, continues to chug along at a steady, albeit more modest, pace. China's gross domestic product increased by 7.3 per cent in the third quarter, compared with 7.5 per cent in the previous quarter. While that was the lowest quarterly growth since the depths of the financial crisis in 2009, the rate remains the envy of major economies. The economy also continues adding jobs at a good clip, and the currency is one of very few that are still rising against the dollar.

"The question or problem we are all facing at the moment is, 'What is right picture for the economy as a whole?' " said Louis Kuijs, the chief China economist at the Royal Bank of Scotland in Hong Kong. "It's complicated by negative forces that show up very strongly in industry but not in the service sector."

Making sense of China's economic health is challenging because the slowdown is partly by design.

The Communist leadership has pledged to reduce China's dependence on credit-fuelled growth and investment, to instead emphasise domestic consumption. It is a risky proposal, and leaders have signaled a willingness to live with slower growth, provided employment holds up and systemic risks are contained.

One figure that Chinese leaders study closely is the number of new jobs. Li Keqiang, China's prime minister, boasted in a speech at a World Economic Forum meeting last month that nearly 10 million urban jobs had been created in the first eight months of the year, up slightly from a year ago. As a result, he said, he would not mind if the growth of the gross domestic product fell short of this year's official target of 7.5 per cent.

"An important goal of maintaining stable growth is to ensure employment, and the floor of the proper range is to ensure relatively adequate employment," he said at the meeting in Tianjin.

But even in the jobs figures, broad disparities exist across China. Employment has grown solidly in the services sector nearly every month in the last five years, according to the purchasing managers index compiled by HSBC and Markit. By contrast, manufacturing employment, which generally expanded from 2009 through 2011, has mostly contracted since.

©2014 The New York Times News Service