China’s GDP growth for September came in at 9.1 per cent, compared to expectations of 9.3 per cent. But although skittish markets did not like it one bit, there’s not a lot of grist for the China bear mill in there. Industrial production and fixed asset investment both grew slightly faster than expected.
Is the soft landing materialising?
Well, there are many economists still forecasting further tightening:
“I don’t think they will make any move (in rates) in the near term. Then maybe after a few quarters, toward the middle of next year, if everything is OK, I think they will continue to hike interest rates, not cut interest rates,” said Ting Lu, economist at Bank of America-Merrill Lynch in Hong Kong.
And WSJ’s China RealTime has several more, talking of a soft landing or little policy action before the end of the year.
Apart, that is, from IHS, who are concerned about exports.
The outlook for exports is particularly bleak, with both CFLP and Markit PMI export sub-indices implying sharply deteriorating demand for China’s exports. Whilst the export orders sub-indices are still nowhere near the depths reached during the great recession, the 2008-09 crash was extremely sudden.
Now, last week’s export data were far from reassuring. From SocGen:
Total exports decreased by 2.1% mom. External demand was weaker across the board, but the biggest drawdown was from Europe, declining 7.5% mom. As a result, yoy export growth to the EU decelerated sharply from 22% in July and August to merely 9.8% in September. That alone subtracted 2.5ppt from the headline number. On the other hand, demand from US consumers held up, albeit at a low level. Nevertheless, recent leading indicators from both sides of the Atlantic point to sharper slowdowns in trade in coming months.
Incidentally Michael Pettis wrote last week that Chinese data show consumption fell even further as a share of GDP in 2010, to 33.8 per cent, which he argues is extremely low and pretty much unprecedented.
He also had some figures on exports too – showing that the record trade surpluses of 2007 and 2008 were never revisited.
And, as trade struggled, investment soared, he writes:
This is just what we would have expected. The negative growth impact of the sharp drop in China’s trade surplus may have forced GDP growth rates to nearly zero, and the sudden and violent expansion in investment was necessary as the counterbalance to keep growth rates high. Changes in the declining consumption share of GDP have had very little impact on changes in GDP growth. And it continues to decline.
So, just how strong is China’s ability to sustain its growth with domestic demand, absent stimulus policies and soaring exports? For those that feel inflation is abating steadily, the answer is pretty straightforward. For everyone else, there’s still plenty to worry about.
Related links:
How much debt can China’s banks take? FT Alphaville