JIM O'NEILL: Everyone Overlooked One 'Especially Encouraging' Data Point In China's Disappointing GDP Number

Jim O'neillJim O’Neill

Photo: Charlie Rose via YouTube

Earlier this month we learned that China grew at an 8.1 per cent rate in the first quarter, down sharply from the 8.9 per cent rate in the previous quarter. Even worse, economists were looking for the number to slow to 8.4 per cent.

However, those who are obsessing on just one quarter’s headline number may be missing signs of a major postive secular shift in China’s economy.

Jim O’Neill, chairman of Goldman Sachs Asset Management, talks about it in his latest Viewpoints note:

“What was especially encouraging though the Q1 data was a comment a spokesperson said about the contributions to the 8.1 pct growth. 6.1 came from consumption (more than 75 pct), 2.8 from investment, and -0.8 pct from net trade. Who said China can’t rebalance? It’s already done it! We reckon (or James Wrisdale does) that private consumption is now nearly 39 pct of GDP, up 4 pct points in the past couple of years.”

Most experts agree that in order for China’s economy to prosper in the long-run, it will have to shift from being an export-driven economy to a one that is consumption-driven.  When you look at it this way, China’s recent GDP report actually wasn’t that bad.

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