China’s slowing growth is denting commodity prices and roiling global economies and companies alike. Monday will offer a fresh look at just how sharp the slowdown is when the country releases third-quarter GDP data. Here are five things to watch:
Grounds for more stimulus
Premier Li Keqiang is targeting real gross domestic product growth this year of “around 7 per cent”, following actual growth of 7.3 per cent last year. Growth in the first two quarters matched the government target exactly, at least according to its own data. But economists expect the rate to dip to 6.7 per cent in the third quarter, which would be the slowest since the depths of the financial crisis. The spokesman for China’s statistics bureau said last month he believed growth as low as 6.5 per cent would still be considered within the target range. Nevertheless, if it falls below 6.7 per cent, calls for more aggressive stimulus will intensify.
GDP deflator
The GDP deflator converts nominal GDP to real GDP by stripping out inflation. Economists have long suspected that China's statistics bureau manipulates it to window-dress the closely watched and politically sensitive headline growth figure. Understating inflation serves to make real growth appear faster than it actually is. The deflator was negative in the first quarter at -0.33, implying the economy was in outright deflation but renewing doubts about its accuracy. It rose back to positive territory at 0.09 in the second quarter. Another negative reading in the third quarter would again raise questions about whether the deflator is being used to “smooth” the appearance of volatility.
Services
As China’s traditional growth engines of manufacturing and construction slow, services have emerged as the new driver. Services grew 12.1 per cent in nominal terms in the second quarter, well above 7.1 per cent nominal growth for the economy as a whole. The government is actively encouraging this transition. But services growth has been boosted by one-off factors, notably the stock market boom early this year in which securities brokerages raked in huge trading commissions. With the stock market collapse in the third quarter, growth in financial services almost certainly slowed. Analysts will be watching to see if other emerging service sectors such as healthcare, tourism and media can take up the slack.
Infrastructure
Fixed-asset investment remains the backbone of China’s economy, accounting for 44 per cent of overall output in 2014. It also drives global demand for commodities such as steel and base metals. But with the property market still mired in oversupply, investment in housing continues to contract. The government has tried to fill the gap this year by boosting spending on infrastructure such as railways and water treatment. Infrastructure investment grew at a rate of 18.4 per cent a year during the first eight months. September data will reveal how aggressively the government is pursuing stimulus through infrastructure.
Addressing data doubts
At July’s GDP data release, the spokesman for China’s National Bureau of Statistics took the unusual step of publicly addressing scepticism about China’s official numbers — specifically the deflator issue. That was followed by a column in the official People’s Daily newspaper offering a somewhat more detailed defence of the bureau’s methodology. Whether the NBS again speaks to critics at its quarterly press conference will reveal how sensitive it is about widespread scepticism.