China Economic Perspectives "A share market correction raises the..."

Research evidence excerpt

China Economic Perspectives "A share market correction raises the..."

2Consumptiongrowthslowedmorethaninvestmentin2Q). On the production side secondary industry led the slowdown while tertiary

sector sequential growth was largely stable (Figure 3Secondaryindustryledthesequentialslowdown). Note 3 caveats: (1) the breakdown

does not allow the differentiation of household vs government consumption, and fixed

asset investment (GFCF) and inventory adjustment; (2) China’s demand side data quality

is much lower than production side data (primary/secondary/tertiary industry), so the

information needs to be treated with higher level care than production side data; (3) the

slowdown of GCF under GDP (real) was much less than the slowdown in monthly

(nominal) fixed asset investment data, especially considering the change in upstream

inflation. We give GCF data a much larger weight when gauging FAI growth.

Although export appears to be a growth driver this year given its strong growth, the

contribution to growth from net exports has been much lower than last year because

much of the rise in export growth is driven by higher price and real import growth this

year has become stronger. 2Q contribution was modestly higher than it was in 1Q, but

both were lower than the trough level last year (Figure 4 Netexport‘scontributiontorealGDPwasmodestlyhigherin2Qthan1Q).

There is no need to panic over 2Q GDP weakness. Growth in 2Q has tended to be

weak in recent years, even adjusting for historic seasonality. This is like one shouldn’t be

optimistic when June data showed strong growth as it tends to be strong. In terms of the

relative importance the two are not comparable with GDP data so there is no such an

issue that policy stance does change because of stronger June data.