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China economy
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Hannah Anderson
Hannah Anderson

Macroscope | In China, government policies, rather than GDP numbers, tell us most about markets

  • Hannah Anderson says in trying to balance the need to support the economy with the need to control systemic risks, Beijing is using a mix of monetary and fiscal measures that investors should watch closely to gauge the health of the economy

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Tax cuts announced in the past few months will put more money in the hands of Chinese households and businesses. Photo: AFP
Hannah Anderson

“Crosscurrents” seems to be the buzzword for global markets in 2019. And one of the oft-mentioned risks for 2019 is the ongoing slowdown in China.

Crosscurrents is also an apt descriptor for what is happening within the Chinese economy. On the one hand, the government aims to support the economy. On the other hand, the importance of controlling systemic risks limits the use of old tools.

A variety of economic indicators has provided conflicting signals, fiscal and monetary policies may appear to be moving contrary to investor expectations, and there are many unanswered questions about external factors affecting China’s economy and markets – most notably the ongoing trade war with the United States. These crosscurrents make it difficult to predict how Chinese assets will perform this year.
Recent data showed that China’s real GDP growth slowed to 6.4 per cent in the fourth quarter of 2018. Underneath the surface, different segments of the economy have been moving in different directions. Industrial production data showed a slight uptick after the government eased controls on polluting sectors and upstream producers last year, while consumer spending on durables, namely autos, continued to weaken. Infrastructure spending, a traditionally reliable channel through which to boost growth, also looked to have made a comeback towards the end of the year.
The first large-scale power grid in Xiongan, Heibei province, is under construction. China’s state planner has in the last two months approved several big infrastructure projects, in an apparent effort to boost its flagging economy. Photo: Xinhua
The first large-scale power grid in Xiongan, Heibei province, is under construction. China’s state planner has in the last two months approved several big infrastructure projects, in an apparent effort to boost its flagging economy. Photo: Xinhua 

Policies enacted throughout 2018 are likely to provide diminishing support for the economy – to be clear, growth looks unlikely to crater, but it may slow further – meaning authorities are likely to either introduce new measures or more aggressively pursue existing policies.

China’s government seems comfortable with modestly lower growth. Official commentary has suggested real GDP growth may hit 6.3 per cent for 2019, with the potential for even lower growth in the first quarter. It is worth keeping in mind that even if growth were to fall to 6 per cent, for example, the additional output generated would equal 5.1 trillion yuan (US$753 billion). A decade ago, China’s gross domestic product would have had to expand by 14.1 per cent, almost double the rate China was growing at the time, to add that much output.

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