Chinese GDP Just Missed Expectations But Everybody's Cheering

Blonde Asian

China just reported 2Q GDP growth of 10.3% for the second quarter of 2010, below the 10.5% many analysts had expected on average. For the first half of the year, GDP grew by 11.1%.

As Chinese economic activity drives much of the world these days, especially when it comes to commodities and capital equipment demand, is this latest slowing growth a sign of the world’s #1 growth engine sputtering out?

Here’s a quick scan of how people are reading this latest GDP report.

'As the economy returns to a more sustainable path, we think there is no need to introduce more fiscal stimulus measures or ease the current monetary policy stance.'

Liu Li-Gang, Australia & New Zealand Banking Group.

Source: China Realtime Report

Great news for Australia and commodities, actually

'...and is expected to continue to slow as we move into the second half of the year. A greater worry for the government is evidence that a moderate slowdown in growth in April and May has segued into a more rapid deceleration in the final month of the quarter.'

Tom Orlik, Stone & McCarthy Research Associates

Source: China Realtime Report

' ...but as inflation fears are alleviated and industrial-production growth is falling more than expected, the Chinese government will likely accelerate investment in public housing and, to a lesser extent, infrastructure spending to stabilise growth. The chance for additional monetary tightening measures such as reserve-ratio requirement and rate hikes is getting smaller in the next couple of quarters.'

Ting Lu, Bank of America-Merrill Lynch

Source: China Realtime Report

The latest 10.3% Q2 figure is slower than Q1 at 11.9%, and far slower than most previous quarters

' ...rather than a forebear of nasty things to come. Inflationary pressure has really eased off -- for now -- with a pullback in CPI and PPI coming in conjunction with the sharp halt in property price rises.'

Alistair Thornton, IHS Global Insight

Source: China Realtime Report

'Public spending is estimated to have slowed in the first half owing to a crackdown on wasteful spending. But there are signs that private facilities investment has strengthened, while private residential investment has not yet seriously responded to April's property-related tightening measures.'

Ben Simpfendorfer, Royal Bank of Scotland

Source: China Realtime Report

Stephen Green, head of China research for Standard Chartered Bank in Shanghai

Source: Telegraph

Our view -- So far this looks like a Chinese Goldilocks economy... but:

Here's my view -- 10.3% GDP growth is on track to achieve China's version of the 'Goldilocks Economy', ie. not too hot and not too cold. The government is trying to slow growth, not increase it. As it does this, the risk is that it slows things down too far, and growth collapses.

So far, this clearly isn't happening, and the fact that this GDP forecast missed analyst forecasts by a few tenths of a per cent is a non-issue and well within the realm of forecast error. Ideally, we want to see China slow to a 9-10% rate and then just keep that up. So far this Chinese Goldilocks economy appears achievable.

Thing is, there are still huge instabilities in the country, such as via its need for employment of migrant workers, or its heavy dependence on the property market. If somehting goes wrong, it will happen very fast, and will give little warning, even if previous quarters look OK.

Still, Chinese stocks were non-plussed at best

But last night's economic outlook downgrade from the U.S. fed could be to blame.

You can read more about the GDP release here.

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