Earlier today China released its quarterly GDP accounts which revealed the economy grew 6.9% in the 12 months to September. The figure, as it had done in three of the four prior GDP releases, managed to beat the median market forecast for growth of 6.8%.
Reflective of the view of some in the markets, Julian Evans-Pritchard, China economist at Capital Economics, believes “the continued stability of the official GDP figures will further cement concerns over their credibility.”
Here’s Evans-Pritchard on his initial take of the figures, and why he believes they seem hard to trust.
“These figures need to be taken with a grain of salt as official GDP growth appears to have become a poor gauge of the performance of China’s economy,” he wrote.
“Flaws with how the GDP deflator is calculated, along with political pressure to meet growth targets that have become increasingly at risk, have meant that official growth rates have not slowed nearly as quickly as most third party measures of growth in recent years.”
Evans-Pritchard suggests that after slowing sharply in the early parts of the year, economic growth now appears to be stabilising, but at levels significantly below those reported by the government.
He points to Capital Economics’ China Activity Proxy index, an alternate growth measure for economic activity within the nation, that stabilised at 4.5% annual growth in both the second and third quarters this year.
Aside from suggesting the official government overstate the actual pace of growth in China by a significant margin, Evans-Pritchard suggests underlying economic conditions “are subdued but stable”. Like others, he also suggests stronger fiscal spending and more rapid credit growth will limit the downside risks to growth over the coming quarters.
Fitting with that view, China’s government released fiscal expenditure and revenues data prior to the GDP release with official expenditure accelerating by 26.9% in the 12 months to September. The sharp increase left government expenditure this year up 16.4% from the same period a year earlier, an increase on the 14.8% pace seen between January to August.
Clearly the government are turning on the fiscal spending taps to shore up flagging economic growth. While its impact has yet to be seen in official data releases, the acceleration has some predicting that Chinese economic growth may accelerate in the final quarter of 2015.