China GDP cools down, 2018 at the lowest since 1990

Official data from the National Bureau of Statistics show the Chinese GDP growth slowed to 6.4 per cent over the year to the end of December, down from 6.5 per cent in the year to September.

That was exactly in line with analyst expectations, but ANZ’s chief China economist, Raymond Yeung, said most experts accepted that it was not an accurate reflection of economic reality.

“China’s GDP number is not an accurate gauge of economic growth,” he wrote in a note just ahead of the data release.

“But China’s GDP is still relevant. An aggressive target of, say 6.5 per cent for 2019, will reinforce the Government’s counter-cyclical stance.

“In 2019, we also need to bear in mind President Xi has ordered that China should celebrate the 70th anniversary of the People’s Republic of China with good economic performance.”

To that end, China has eased some key reserve requirements for banks to stimulate lending.

Capital Economics chief Asia economist Mark Williams said the Chinese economy was growing at around 5 per cent at the turn of the year. This was expected to drop to an average of 4.5 per cent in 2019. Economists were particularly worried about weak car sales, slowing retail sales and last week’s poor trade data.

“There’s no indication in the recent data that conditions are stabilising – the incoming data are likely to keep weakening for a while yet before the economy bottoms out with the help of policy support some time around the middle of the year,” Mr Williams said. Capital Economics has its its own China Activity Proxy (CAP) to track the pace of growth without relying on official figures.

Even in China where the domestic media now censors negative reports about the country’s economic well-being, economists are warning the government’s official figures are not be trusted.

However, China is having to tread carefully given a national debt-to-GDP ratio around 325 per cent, putting it among the ranks of highly indebted countries.

Today’s data release also contained more recent figures from the month of December — retail sales, industrial output and urban investment.

Two of the three were close to expectations, with retail sales growing 8.2 per cent year-on-year and urban investment up 5.9 per cent.

Industrial production beat expectations, growing 5.7 per cent rather than the typical forecast of 5.3 per cent, and also stronger than November’s 5.4 per cent result.

Concerns about China’s slowing economy have spread to the Australian investment community. Fund managers said they were not expecting a major downturn which would hurt Australian exports but they were still watching closely for negative signs.

“Given the high debt levels, the challenging demographics and the over-capacity in some regions and sectors it is however likely that the underlying level of growth will slow over the medium term,” said Dion Hershan, head of Australian Equities at Yarra Capital Management. “It’s reasonable to expect fiscal and monetary stimulus activity to revive activity levels, and while it’s difficult to predict the size and the focus of any stimulus program, historically there has been a skew towards infrastructure projects.”