Comfortingly weak showing

China's mild slowdown dims hope for big stimulus

At 7.4 per cent, China’s third-quarter GDP growth rate was the lowest for three years. But it looks like the worst of the recent de-acceleration is over.

The headline number looks weak, at least in comparison to the 10 per cent rate of the last decade. But a closer reading of the statistics is more encouraging. For one thing, UBS calculates that the seasonally adjusted annualised quarter-on-quarter growth rate was 7.6 per cent, up from six and seven per cent in the preceding two quarters.

The government’s efforts to spur activity seem to be working. Property sales rebounded in the third quarter. That helped furniture sales, up 27 per cent in the quarter year-on-year. Medicines, telecom equipment and apparel all posted 20 per cent or higher growth. While heavy industries such as steel and chemicals are still cutting back on inventories, technology, pharmaceuticals, and food processing remain strong.

The monthly data also suggests a modest pickup of the growth rate. September’s retail sales were 14 per cent higher than in the same month a year ago. In August, the annual growth rate was 13 per cent. Investors probably need to become more positive. Earlier this month, they were expecting a 5.0 per cent annual increase in exports, according to Reuters estimates. The actual number was 9.9 per cent.

Many investors are reluctant to give up on their expectations of a big slowdown, possibly because they would welcome the effect of a huge stimulus programme on asset prices. But while September’s consumer prices inflation rate was a low 1.9 per cent, leaving room for an official push, the new generation of leaders is likely to believe the Statistics Bureau, which is confident that the full-year target of 7.5 per cent GDP growth will be met. Besides, the target rate in the latest five-year plan is just seven per cent.

If unemployment were perceived as a serious threat, things might be different. But Foxconn, an Apple contractor, reports difficulties in recruiting and retaining workers. Job vacancies continue to outnumber job seekers at labour bureaus in the third quarter. Overall, it looks like Beijing has done a pretty good job of fine-tuning this still fast-growing economy.