Optimists vindicated: China is ticking along nicely

The panic over Chinese growth appears to have been overdone as the country's construction sector forges ahead.

790-China-634
China is still building

Last summer and early this year markets were panicking about a steep downturn in China. The worry always looked overdone, and the latest data bear out the optimists' view, as Roger Bootle and Julian Evans-Pritchard of Capital Economics point out. The official figures say annual GDP growth slowed to 6.7% in the first three months of 2016, from 6.8% in the previous quarter.

Nobody pays much attention to the state's data, of course, but an alternative gauge developed by Capital Economics suggest that the economy is growing by around 4%, while the direction of travel is encouraging. After a sharp slowdown in early 2015, the economy is stabilising and appears to be gathering steam. "This would not be surprising, given stimulatory monetary and fiscal policy," says Bootle. There have been several interest-rate cuts over the past fewmonths, while lending restrictions have been loosened.

"The turnaround has been built on the back of stronger activity in construction and real estate", underpinned by state stimuli, notes Evans-Pritchard. Growth in new housing starts has accelerated; fixed asset investment strengthened during the first quarter. Industrial production growth jumped to a nine-month high of 6.8% year-on-year in the first quarter. Growth in electricity and cement output reached the fastest pace in over a year.

Retail sales growth edged up, thanks to the strong labour market. There should be more to come, as credit growth has reached a 20-month high. There are plenty of potential problems to keep investors awake at night, but a slump in China isn't one of them.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Inflation looks likely to take off this year – but there’s one key risk
Inflation

Inflation looks likely to take off this year – but there’s one key risk

With the world’s governments spending money hand over fist, inflation looks certain to take off at some point. But China could change all that. John S…
19 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021

Most Popular

Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Prepare for the end of the epic bubble in US stocks
US stockmarkets

Prepare for the end of the epic bubble in US stocks

US stocks are as expensive as they’ve ever been. How can you prepare your portfolio for a bubble bursting?
18 Jan 2021
The best investment trusts to buy for 2021
Investment trusts

The best investment trusts to buy for 2021

Sectors ranging from emerging markets to student accommodation look poised to do well this year, says David Stevenson, as he picks the best investment…
19 Jan 2021