CHINA AND ITS GROWTH STORY - CHUGGING ALONG JUST FINE
By Ruma Dubey
Everything is about how you interpret the data. The very same data, one can make it look positive and boost sentiments or one can look for what’s not right in the picture and give it a negative twist.
China announced its GDP numbers for quarter ended December 2014. And the very same story has two versions: One headline screamed, ‘China posts slowest growth in 24 years’ and the other headline said, ‘China GDP growth beats estimate leaving 2014 growth close to target’.
Both were about the very same numbers but one was very negative and if the markets had concentrated on that, it would have slipped deep into the red, especially on the back of IMF growth figures. Fortunately, the markets decided to look at the optimistic story – the underlying mood is positive and that’s why the other headline was completely ignored.
So what exactly is the story? The Chinese National Bureau of Statistics stated that China achieved a GDP of 7.4% for December quarter and this was very much in line with what the Premier Li Keqiang had targeted. Thus China achieved what it had estimated and that was most certainly good news. More importantly, it beat all estimates – industrial output for December rose 7.9% (YoY) and retail sales rose 11.9%, both surpassing all forecasts.
Yes, this is a gratifying piece of data but some decided to concentrate on the fact that China recorded the weakest annual expansion since 1990, forgetting to mention that , this GDP is now 10 times as large as it was back then. The cooling property market, slowdown in demand, collapse of credit, overcapacities and spike up in bad loans – all these issues remain but what we are also seeing is a pick-up in consumption and service sector activity. The headwinds remain somber for 2015 as all these issues will continue to plague the country which literally drives various economies of the world. In fact IMF, in its latest Global Growth Outlook report stated that China’s growth in 2015 will be 6.8% and 6.3% in 2016, a trimming of 30 and 50 bps respectively from its earlier projections.
The Indian markets and those in Asia and Europe are doing well despite this report because it is sure that on 22nd Jan, the ECB will announce sops, a bond buying program, even as USA will now tread the path of hiking interest rates. Also the market is viewing the growth slowdown in China differently – the Chinese have managed to achieve their growth target, increase some tempo of growth reforms, sustain property cooling down. The perception of most analysts world over is that China is entering 2015 in a much better shape than previous year, lowering the need for more stimulus which it can ill-afford at this juncture.
Thus the story here is that China is chugging along just fine; we just have to get used to the fact that this will be its tempo of growth unlike the earlier mad-rush boom but at the same time, it’s not a complete collapse. Guess, this is what the markets all feel which is why they have chosen to ignore the ‘pessimistic’ headlines!