This has been a year where China has been especially in focus. Even before it began there were plenty of eyes on its economic performance but the Coronavirus pandemic that looks to have emerged from the Huhan Province upped the ante. Today gives us the opportunity to note the official view on economic developments since then.
The economic growth of the first three quarters shifted from negative to positive, the relations between supply and demand gradually improved, the vitality and dynamic of market were enhanced, and the employment and people’s livelihood were well guaranteed. The national economy continued the steady recovery and the overall social stability was maintained.
So quite an apparent triumph with the pattern for the year show below.
Specifically, the GDP for the first quarter declined by 6.8 percent year on year, increased by 3.2 percent for the second quarter, and up by by 4.9 percent for the third quarter.
They use numbers that are compared to the previous year for that quarter so let us now switch to looking at quarterly and annual growth.
The GDP for the third quarter grew by 2.7 percent quarter on quarter……..According to the preliminary estimates, the gross domestic product (GDP) of China was 72,278.6 billion yuan in the first three quarters, a year-on-year growth of 0.7 percent at comparable prices.
So the overall picture we are left with her is of an economy which has weathered the pandemic and in fact grown albeit very slightly. If you want the pattern which has brought us here it is shown below.
The quarter-on-quarter growth of quarterly GDP since 2019 were 1.9 percent, 1.3 percent, 1.0 percent, 1.6 percent, -10.0 percent, 11.7 percent and 2.7 percent respectively.
In terms of industry China is emphasising that there has been plenty of high-tech growth.
In the first three quarters, the value added of high-tech manufacturing and equipment manufacturing grew by 5.9 percent and 4.7 percent year on year. In terms of the output of products, in the first three quarters, the production of trucks, excavators and shoveling machinery, industrial robots, and integrated circuits grew by 23.4 percent, 20.2 percent, 18.2 percent and 14.7 percent year on year respectively.
I am not quite sure why they needed so many extra trucks, excavators and shovelling machinery. Unless of course they were dealing with the swine flu problems of pork production.
Specifically, the output of poultry grew by 6.5 percent, and output of beef, mutton and pork dropped by 1.7 percent, 1.8 percent and 10.8 percent respectively, a decline narrowed by 1.7 percentage points, 0.7 percentage points and 8.3 percentage points compared with that of the first half of this year. The pig production capacity gradually recovered. By the end of the third quarter, 370.39 million pigs were registered in stock, up by 20.7 percent year on year, among which, 38.22 million were breeding sows, up by 28.0 percent.
Overall industry was an outperformer.
Specifically, that of the third quarter grew by 5.8 percent year on year, 1.4 percentage points faster than that of the second quarter.
Again the picture here is of a modern thriving economy.
In the first three quarters, of modern service industries, the value added of the information transmission, software and information technology services, and financial services grew by 15.9 percent and 7.0 percent respectively, or 1.4 percentage points and 0.4 percentage points higher than that of the first half of this year.
However the overall position like elsewhere is of a services sector in decline.
The Index of Services Production dropped by 2.6 percent year on year, a decline narrowed by 3.5 percentage point compared with that of the first half of the year; specifically, that of September grew by 5.4 percent, 1.4 percentage points faster than that of August.
We see that retail sales have had their struggles by the way we are guided towards September rather than the whole third quarter.
In September, the total retail sales of consumer goods reached 3,529.5 billion yuan, up by 3.3 percent year on year, 2.8 percentage points faster than that of August, maintaining the growth for two consecutive months.
This has managed to just become positive.
In the first three quarters, the investment in fixed assets (excluding rural households) reached 43,653.0 billion yuan, up by 0.8 percent year on year, shifting from negative to positive for the first time in 2020, while that of the first half of this year was down by 3.1 percent.
Looking into the detail we see that one definition of investment ( manufacturing) fell but construction carried on growing.
the investment in manufacturing dropped by 6.5 percent, a decline narrowed by 5.2 percentage points compared with that of the first half of 2020; the investment in real estate development grew by 5.6 percent, 3.7 percentage points faster than that of the first half of 2020.
The latter is very different to what we have seen elsewhere.
This of course was a contributor to the imbalances that led to the credit crunch. As you can see it has got worse rather than better this year.
In the first three quarters…….The value of exports was 12,710.3 billion yuan, up by 1.8 percent, and the value of imports was 10,404.8 billion yuan, down by 0.6 percent.
I note that they use value rather than volume but suspect this may just be a translation issue. The imbalance situation did improve in September but as ever we need to be cautious about trade figures for a single month.
This merits a mention as it has not behaved as people continue to expect.There have been plenty of reports published about a weaker Renminbi but in fact in the second half of this year it has been strengthening. The nadir was on the 28th of May at 7.17 versus the US Dollar compared to 6.7 this morning.
What this means beyond the obvious is complex because the Renminbi is neither fixed nor floating and is a managed currency.
There are several layers in an analysis of this. So let me start from the beginning which is that GDP is calculated differently in China to elsewhere.
While GDP growth in most countries is a measured output that depends on volatile real economic activity, Chinese GDP is an input into the economic process in which local governments are required to add whatever additional economic activity is needed to achieve the targeted GDP growth rate, whether or not this activity adds to welfare or productive capacity ( Michael Pettis )
So a version of “tractor production is always rising” if you like. The debate has gone on for years and a new view on it is around inflation measurement which if you look at the thrust of my work raises a wry smile. Essentially it is not the basic numbers used but it is the inflation measure or deflator that has “smoothed” things since 2012. Taking that view Capital Economics in China suggest GDP has been overstated by around 12%. They back up their view in this way.
For example, the formerly tight link between construction activity and cement output stops working. (See the chart.) Industrial value-added (and monthly IP) become eerily stable, but direct measures of output from industry don’t.
It’s harder to find proxies for services (partly because much of it is lumped together as “other” services, which have apparently been growing very fast). But we see the same abrupt drop in volatility as in industry.
This fits with what we have noted in the past as for example the phase whereby electricity production did not fit what we were told. However, this is a movable feat as once the Chinese noticed this they became “smoothed” too.
So China looks as though it is doing better than us western capitalist imperialists in 2020 which I guess is no great surprise.After all they have much more experience of running a centrally planned economy.We keep stopping ours. However they have been to coin a phrase “somewhat economical with the figures” since around 2012.
There is a subplot to that too as back on the 12th of August I pointed out a really odd move in the UK Deflator.
The implied deflator strengthened in the second quarter, increasing by 6.2%. This primarily reflects movements in the implied price change of government consumption, which increased by 32.7% in Quarter 2 2020.
We failed to follow what Level 42 would call The Chinese Way however as we reduced our GDP by around 5%.