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Five things to watch for in China’s new GDP data

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Chinese economy

Five things to watch for in China’s new GDP data

Closely watched figures will provide insight on whether US trade war continues to bite

A glitzy shopping mall in Beijing. China’s economy last year grew at the slowest annual rate in almost three decades © Reuters

The publication of China’s latest economic growth estimate on Wednesday will be closely watched by global markets for signs of a pick-up in the world’s second-largest economy after a difficult few months.

On average economists expect a 6.3 per cent annualised increase in gross domestic product in the first three months of this year, according to a poll by Reuters — that would be a further small deceleration from the previous quarter’s 6.4 per cent growth.

China’s economy last year grew at the slowest annual rate in almost three decades.

In response China softened its annual growth target from 6.5 per cent last month, with Premier Li Keqiang citing “profound change in our external environment”, particularly the US-China trade tensions, for the deterioration.

Although a raft of data for January and February were largely negative, signs of a revival in March suggest that the government will meet its new annual year-on-year growth target range of 6 to 6.5 per cent.

Here are five things that analysts and investors will be looking for. 

1. A reprieve from Donald Trump? 

As talks to end the ongoing trade war between the world’s two largest economies became bogged down in December and January, it appeared that the resulting knock on investment and market sentiment would increase the financial and economic pressures on Beijing. 

The CSI 300 index — which tracks the share prices of China’s biggest listed companies — ended 2018 almost 24 per cent lower than it was when the trade war began in earnest last May.

But the index began a sustained rebound when Mr Trump postponed plans to increase tariffs on Chinese imports on January 1, and later indicated that a final trade settlement was now only a matter of when, not if. It is up by more than 30 per cent since the start of the year. 

Wednesday’s data should provide evidence of whether this revival of animal spirits on the Shanghai and Shenzhen stock exchanges has been warranted. 

2. Private sector revival? 

In recent years private sector companies have found it increasingly difficult to secure credit from state banks as the government cracked down on alternative funding sources in the shadow banking sector.

When share prices dropped last year, private companies that had pledged shares as collateral often saw those shares fall into state hands. 

Private sector morale was so low last year that in October and November vice-premier Liu He and President Xi Jinping held a series of high-profile meetings, intended to bolster entrepreneurs’ morale.

In January, Mr Liu and Premier Li Keqiang publicly lectured the country’s largest state banks on the need to give greater financial support to private sector firms. 

New data on fixed asset investment by the private sector should indicate if China’s entrepreneurs are reacting positively to these gestures of support from senior government leaders. 

3. Are central government stimulus measures working? 

Mr Li has repeatedly pledged that the government, in its efforts to keep economic growth from slowing too sharply, would not resort to “flood-like stimulus” as it did in the wake of the global financial crisis of 2008-09. 

Instead the State Council recently unveiled a series of tax cuts worth an estimated Rmb2tn to stimulate economic activity. First-quarter consumption data should indicate whether consumers are responding to these measures. 

China’s central bank has similarly refrained from cutting benchmark interest rates and instead reduced the amount of reserves commercial lenders are required to put aside — provided that the freed-up capital is directed towards rural development, small and medium-sized enterprises and other sectors favoured by the government. 

4. Is Beijing also reverting to its traditional tricks to produce growth? 

Despite Mr Li’s pledge, a recent surge in local government bond sales and state investment in infrastructure projects suggest the Chinese government is also reverting to more traditional means of boosting growth. 

Chinese bank lending set a quarterly record of Rmb5.8tn in the first three months of the year, driven by a credit surge in March. New data due out on Wednesday may show a corresponding increase in fixed asset investment by state companies. 

5. Are homes for speculating on again? 

As concerns about economic growth mounted over recent months, Chinese officials referred less frequently to their earlier slogan that “homes are for living in, not speculating on”. 

Instead they are now easing restrictions on the property sector, which along with related industries accounts for a quarter of all economic activity according to some estimates.

The temptation to fire up this important economic engine is all the greater as auto sales, which traditionally boost demand in a range of ancillary industries, have fallen sharply over the past year. 

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