China’s National Bureau of Statistics released its 2016 Q2 GDP growth estimate last week. At 6.7% in the four quarters to Q2, it sat comfortably within Beijing’s target range. On a quarterly basis, GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since figures were first published in 2011.
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Last week, China’s National Bureau of Statistics released its preliminary estimate for second quarter GDP growth, beating most national statistical agencies by several weeks. Coming in at 6.7% in the four-quarters to 2016 Q2, it sat comfortably within Beijing’s target range of “between 6.5% and 7.0%” and was the same as that achieved in the first quarter. However, we remain skeptical about the accuracy of China’s GDP data. Not only are they published with surprising efficiency, the headline growth figure remains well above our own gauge of China’s economic activity — our China Momentum Indicator (CMI) — which suggests that growth is closer to 2.4%.
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On a quarterly basis, China’s official GDP grew by 1.8%. This was up from 1.2% in Q1, the slowest pace since quarterly growth figures were first published at the beginning of 2011. Accordingly, both our CMI and official GDP data suggest that China’s dramatic slowdown bottomed out in the first quarter of this year. This is in line with our view that China’s policymakers are in the process of ‘doubling down’ on investment in a bid to kick-start the economy.
The monthly statistics released alongside last week’s GDP data reaffirm that view, pointing to China’s pursuit of short-term growth objectives at the expense of rebalancing. Indeed, indicators most closely linked to China’s tried-and-tested growth model, electricity production and bank lending growth, picked up last month. In addition, growth in fixed-asset investment by private enterprises fell to a record low in the first half of the year compared to the same six months a year ago. Meanwhile, the equivalent figure for state-owned enterprises rose by 23.5%.
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Although unsustainable, this pick-up in economic activity has been received positively by Chinese investors and consumers alike. The National Bureau of Statistics’ Consumer Confidence Index rebounded to 102.9. A figure above 100 shows that consumers are becoming more optimistic. Meanwhile, the Shanghai stock index has gained around 6% since the UK voted to leave the European Union – suggesting that China worries have been superseded by Brexit.
Interestingly, the People’s Bank of China appears to have used the UK referendum result to allow the renminbi to fall to a five-and-a-half year low against the US dollar, avoiding the financial turmoil which followed the devaluation last August. In effective terms, the renminbi has declined steadily throughout the year. This is in line with the path that we set out three months ago in our Global Economic and Markets Outlook for 2016 Q2. Looking ahead, we expect the gradual depreciation of the renminbi to continue, alongside two or three interest rate cuts by the end of the year.
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