There is one simple reason why when the Chinese Q3 GDP print is revealed shortly, it will be an utterly meaningless indicator – the number, as not only traders but the general public know, is a goalseeked, arbitrary political construct meant to convey not information about the economy, but – at best – about Beijing’s intentions what it may or may not do in the future regarding future monetary or fiscal (which as we showed just hit an all time high) stimulus.
In fact, as Evercore ISI said in the company’s latest look at China, “China’s Real GDP data is opaque; Nearly invariant at 7 – 7.5%; No real, nominal, deflator detail; no income-expenditure cross check, etc. No data pros will answer questions.” In short: it is useless. An alternative, and much more informative index created by ISI, is shown by the red line in the chart below – unlike the blue line, or China’s official GDP data, it reflect the real twists and turns in China’s economy.
Alas, it is not the red line we will be getting shortly; it is the blue one.
And, as Bloomberg points out, with the world’s second-largest economy stable for now on the back of yet another $250 billion in new loans injected into the economy in just the month of September, those who are inclined to read into Chinese economic data will need to look under the hood to see where the real action is when China releases its Q3 economic report card. In terms of expectations, GDP probably expanded 6.7% from a year earlier in the three months through September according to consensus, although we would speculate that with both fiscal and monetary stimulus options dwindling, Beijing will make the case that they are not needed, and will thus beat by the minimum 0.1% marin to the upside, printing at 6.8%. Whichever number comes on top, however, will be smack in the middle of the government’s full-year target pace.
In addition to GDP, China will also report industrial output, fixed-asset investment and retail sales, all of which are expected to have picked up last month.
And while the recent deflationary pressures have abated for the time being, and a weaker currency cushioning the blow from tepid trade, China’s economy has defied its doomsayers also for the time being, however the cost of that stabilization has been more debt that’s fueled a property frenzy in China’s biggest cities.
In any case, back to the GDP report where for a gauge of whether China can keep the good times rolling, here are some themes to keep an eye on in the reports, courtesy of Bloomberg:
Real Estate Investment:
While prices have surged in cities like Shenzhen, Shanghai and Beijing, developers have remained largely cautious on a national level by their historical standards.
The latest data on completed property investment will show whether developers are buying into the price frenzy or remaining level headed. While an increased turnover of apartments fuels realtors’ paychecks and the services sector, it’s construction that really stokes the economy by firing up demand for concrete, glass, steel and other raw materials.
The economy’s stabilization in 2016 has been underpinned by government spending on everything from shanty town upgrades to new pipe networks. Private investment, meantime, seemed to be in chronic decline. Until August that is, when private investment in fixed assets stabilized. Any pickup would be an upbeat sign for the economy’s momentum.
As private firms tightened their purse strings, state-owned companies opened theirs. Watch for any movement here to get a read of the government’s latest policy stance.
A read of economy-wide inflation should show the return of some kind of pricing power for Chinese companies and a resulting decline in real borrowing costs. The GDP deflator — the difference between the headline growth rate (adjusted for inflation) and the nominal growth rate (unadjusted for inflation) — usually falls somewhere between the consumer price index and the producer price index, which just turned positive after more than four years of deflation.
With economists dialing back expectations for additional monetary stimulus — and some already mulling a switch toward tightening in the not-too-distant future — a significant move higher in the deflator could be a policy altering event.
Leaders and Laggards
Outcomes in China’s continent-sized economy are diverging — between regions and among sectors. Case in point: the car-making industry’s output rose 21.4 percent from a year earlier in August while metal smelting and pressing languished. Today’s industrial report will give the latest look at which industries are on the rise and which are headed in reverse.
Tomorrow at 9:30 a.m., a GDP breakdown will reveal the growth pace of different sectors. This encore to the main report will shed light on the state of rebalancing and the health of a services sector that now accounts for more than half of economic output.
Updates on the all-important job market should also be released at or around the GDP press briefing. While Premier Li Keqiang recently said the jobless rate fell under 5 percent, a spokesman for the statistics authority may give a more detailed reading.
An upcoming report by the Ministry of Human Resources and Social Security will show the ratio of job seekers to job vacancies, and which regions and sectors are hiring. More solid news on this front may convince policy makers they don’t need to throw in additional monetary and fiscal stimulus.