China Fourth Quarter GDP Preview: Q4 is an afterthought

• Growth expected to be unchanged at the modern era low.
• US trade deal should boost the mainland economy in the first half.
• Economic considerations will move to the first half of 2020 for trade effects.

The National Bureau of Statistics will release its estimate for gross domestic product in the fourth quarter of 2019 at 10:00 CST, 2:00 GMT January 17^th, 21:00 EST January 16^th.

Forecast

Gross domestic product in the fourth quarter is predicted to be unchanged at 6% year on year.  It is also projected to be unchanged on the quarter at 1.5%. The range of estimates in the Reuters survey is from 5.8% to 6.3%.

Trade trumps all

It is too soon to expect any result in China from the trade deal signed on Wednesday in Washington even though the pact has been highly anticipated for more than two months. The accord calls a truce in the trade war and moves the two countries at least partway towards cooperation. It also renders all previous economic results in China and the United States more than a bit passé. 

What matters for China and United States and the global economy is what comes next. Will the agreement improve growth, employment and business confidence on either side of the Pacific? If it does then the fourth quarter on the mainland and in the US is likely to be an afterthought, of interest only as a reference point for what came after.

China runs down

China’s 6% growth in the third quarter of was the weakest in the modern capitalist era and statistically the slowest since Beijing’s records began in 1992.  

Mainland expansion has been slipping since the third quarter of 2018 after plateauing between 6.7% and 7.0% from the beginning of 2014 through the first half of 2018.  The economy expanded at 7.3% in 2014, 6.925% in 2015, 6.725% in 2016, 6.75% in 2017, and 6.6% in 2018. If the estimate for the last three months of 2019 is correct, the mainland economy will have grown 6.15% last year.

The descent of China’s GDP coincides with the trade dispute with the United States but the rate of growth was slowing long before Donald Trump was elected in November 2016.  China’s GDP had dropped below 8% in 2012 and never regained what Beijing planners once said was the lowest acceptable limit for social stability.  

A combination of slowing infrastructure construction, weaker than expected domestic consumption and the maturing of its manufacturing sector all contributed to the decline. Behind the specific causes was the inevitable fact that it is impossible for an economy as large as China’s had become to maintain the growth rates of its youth.

China’s domestic indicators

Beings economic policymakers have promised to support the economy but to eschew the massive loans that have built up a dangerous debt load in several sectors of the economy, particularly the older and less efficient state owned enterprises.

A number of indicators suggest that the worst may have been behind the economy even before the trade agreement was signed.

Exports rose 7.6% in December, more than double the 3.2% forecast after falling for four straight months.  Imports jumped 16.3% in December, much better than the 9.6% estimate and rose 0.5% in November after falling for six month in a row and nine out of 12 months in 2019.  Imports are as indicative of demand for Chinese goods as are exports because many manufactured items are assembled on the mainland from imported components.

Manufacturing PMI from the National Bureau of Statistics was 50.2 in November and December, the first months since April above the 50 mark for expansion. Of the 13 months following November 2018 the factory sector contracted in nine.

Reuters

Industrial production however remains weak. It grew at a 5.6% rate in November, just above the post-financial crisis low of 5.3%.

Conclusion

China’s statisticians have an enviable record for accuracy.  In the past five years no GDP figure has missed its forecast by more than 0.1%.  If Beijing expects 6% growth in the fourth quarter, it is an excellent bet the National Bureau of Statistics will provide it.

The People’s Bank of China has been allowing the yuan to strengthen against the dollar since the middle of October in what was always the strongest sign that a trade deal with the United States was imminent.  That will continue until the yuan is much closer to its level of early 2018 before the trade argument began.

With the US trade deal China has entered the global economy. What comes next will be far more interesting and important than what has gone before.