Posted by: Frederik Balfour on April 16, 2009
It’s all about managed expectations, I suppose. China announced its first quarter GDP growth figures today of 6.1% and most analysts just shrugged. Consensus figures were 6.2%, with a fairly narrow spread in forecasts, which makes sense, considering most people believe Beijing massages headline growth figures to meet official expectations anyway. For more on how China has cooked its books on GDP reporting, have a look at this BusinessWeek article I wrote in 2002
But it’s relative rather than absolute numbers that matter here, and as Deutsche Bank economist Jun Ma points out in a note to clients the implied annualized (seasonally adjusted) quarter on quarter GDP growth recovered sharply to 7.2% in the first quarter from 1.5% in the last quarter of 2008. That suggests the bottom has already been reached.
The stock market reaction was pretty tepid too. The Shanghai A Share index closed down nearly 2% on the day, which for China is a pretty modest move. Clearly investors have been anticipating a recovery in China for a while, and the index is up nearly 40% this year. Whether it’s a fool’s rally or not still remains to be seen, however.
The main reason China has managed to keep growing as much as it has is thanks to some serious pump priming. Fixed asset investment was up 28.6% in the first quarter, much of it in government-led infrastructure spending as part of the $586 billion stimulus package.
However as JP Morgan Chairman of China equities Jing Ulrich points out today investment in manufacturing and property sectors remain weak. This means the private sector is still wary of committing new cash, and will likely remain so for a while yet.