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.
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.