China GDP: 5 things to watch

Posted on July 14, 2016

This picture taken on July 11, 2016 shows a man cycling past a billboard showing an aerial view of Shanghai. China's growth slipped to a new seven-year low of 6.6 percent in the second quarter, according to a survey of economists by AFP, despite government efforts to spur activity in the world's second-largest economy. / AFP PHOTO / JOHANNES EISELE / TO GO WITH China-economy-growth-GDP,POLL by Bill Savadove©AFP

    China will report gross domestic product data for the second quarter on Friday amid worries about the country’s economic slowdown and the health of its financial system. Here are key points to watch:

    Headline growth: China’s GDP growth has slowed for four of the past five and 15 of the past 20 quarters. The legislature approved a full-year growth target of 6.5 to 7 per cent for 2016, down from last year’s target of “around 7 per cent”. Actual growth was 6.9 per cent last year and 6.7 per cent in the first quarter. Economists expect 6.6 per cent growth for the second quarter, according to a Reuters poll. If growth falls short of that level, policymakers will face more pressure to increase fiscal and monetary stimulus. 

    Real estate: The revival of China’s property market, especially in large cities, has been crucial to enabling China’s economy to avoid a hard landing. But growth in property investment slowed in May following four straight months of acceleration, hinting that developers believe the rally may not last. China will release property investment, construction and sales data on Friday along with GDP. If activity remains strong it will be a sign that real estate will continue to support growth in the second half. 

    Infrastructure: Despite modest progress towards rebalancing in recent years, investment in fixed assets remains the bedrock of China’s economy. Over the past year, however, private investment in new factories and equipment has plummeted. In response, the government has deployed state-owned enterprises to boost investment in roads, railways and sewer systems. Friday’s GDP data will reveal how much infrastructure investment has contributed to overall growth. If its contribution is high the government will face a difficult choice about whether to pile on more stimulus or allow growth to slip.

    Financial services: The second quarter of 2015 was the peak of China’s stock market bubble. Trading commissions and margin lending boosted profits of securities companies and led to a big contribution to overall GDP growth from financial services. But trading volumes in recent months have been a fraction of their peaks from last year. The high base of comparison means that year-on-year growth in financial services is likely to fall in the second quarter and may even be negative.

    “Other” services: Strong growth of services cushioned the blow from the slowdown in China’s industrial economy. A broad category called “other” services includes many of the service sectors where growth is thought to be strongest, including healthcare, education and entertainment. Inflation-adjusted growth of other services dipped from 9.9 per cent in the fourth quarter of 2015 to 8.7 per cent in the first quarter this year. A further growth decline will signal that the potential of services to buffer China’s overall growth slowdown is limited.

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