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What to Look for Beyond the Headlines in China’s GDP Report

Monday, January 19, 2015   (0 Comments)
Posted by: Karen Kistenmacher
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By Bloomberg News - Jan 19, 2015

At 10:00 a.m. Tuesday in Beijing, China’s statistics bureau is due to announce gross domestic product data that will probably show the economy expanded 7.3 percent in 2014, the slowest full-year pace since 1990, according to the median forecast of economists surveyed by Bloomberg News.

Beyond the headlines, here are a few things to look out for to see the structural shifts occurring amid the slowdown.

1. Signs of Deflation

The gap between nominal GDP (unadjusted for inflation) and real GDP (adjusted for price changes) growth is an indicator of economy-wide inflation, or disinflation. The GDP deflator, which shows the difference between the two, has fallen from more than 8 percent in 2011 to about 1.1 percent in the first three quarters of last year, according to data compiled by Bloomberg, signaling moderation in price increases.

In Tuesday’s data on real and nominal GDP, we’ll get an up-to-date reading on economy-wide price trends.

2. Property

Paid-in capital of fixed-asset investment, which climbed about 3 percent in November from a year earlier, and nationwide property sales, down 7.8 percent in November, are two indicators Xu Gao, chief economist at Everbright Securities Co., will be scrutinizing.

"The November FAI paid-in capital looked terrible," Xu said last week. "We’ll see if December’s number shows the effect of the credit boost in the past few months."

While property data for major cities released Jan. 18 showed fewer cities registered a price drop last month, Xu wants to see the nationwide picture.

"Big cities have seen a housing recovery, but we are worried whether that will be the case in fourth and fifth-tier cities," Xu said.

3. Industrial activity and electricity output

Growth of industrial production, forecast at 7.4 percent for December from a year earlier and 8.2 percent for the whole year, is a barometer of the health of China’s factories.

Electricity output, watched by Premier Li Keqiang, deepened concern over the slowdown in August when it fell 2.2 percent from a year earlier. Influenced by weather and workdays too, the slump from 16 percent growth in the first two months of 2014 alerted economists to weakness in manufacturing.

4. Rebalancing?

A press briefing after the first statements are out should provide more information on the economy’s composition. In 2013, consumption contributed 50 percent to GDP growth, investment accounted for 54.4 percent, and trade was a drag of 4.4 percent.

In 2014, trade’s contribution to growth will be 10.5 percent, the highest since 2008, Vice Commerce Minister Zhong Shan said at a press briefing last week.

Consumption’s share seems to have fallen, raising the question of whether China is indeed rebalancing toward domestic drivers of growth. The number in the first three quarters of 2014 fell to 48.5 percent.

"We are interested to see what happens in the imbalances of investment and consumption," said Mark Williams, chief Asia economist at Capital Economics Ltd. in London. "The data have not been particularly encouraging over the past few years."

5. Shrinking labor force, higher incomes

China’s working population has been shrinking since 2012. Will shifting demographics stall China’s growth engine? A statement on the statistics bureau website will include the latest number on the labor population aged 16 to 59 and the change from 2013.

The shift is contributing to a tight labor market even as economic growth slows: The ratio of jobs available to job seekers rose to 1.15 in the fourth quarter, up from 1.1 in the third quarter, according to a statement from the Ministry of Human Resources and Social Security. While demand for workers fell from the previous quarter, that drop wasn’t as fast as the decline in job seekers.

"The labor market has been very tight when the economy is slowing," Williams said. "What that tells us is that you can’t beat the slowdown in China’s economy as it’s a structural slowdown, it’s not one that would be reversed by policy easing."

Tuesday’s release will also include residents’ disposable income numbers, which rose 9.3 percent in the first three quarters from the same period a year earlier in urban areas, and 11.8 percent in rural areas. 

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