– Chinese GDP came in lower yet again, printing at 6.8% after last quarter’s first fall below 7% for the first time since the financial collapse.
– Chinese stocks caught a strong bid last night after the bad news with aggressive price action, with the deductive response of investors increasing expectations for additional stimulus out of China.
– Investors appear to be using this run higher on the morning to sell at better prices, as weakness has begun to come into many major bourses on the early portion of the morning.
Chinese GDP has become a massively important number as the Chinese economy slows and investors attempt to get a sense of how aggressively this slowdown may be hitting. We discussed this theme back in October as Chinese GDP fell below 7% for the first time since the Financial Collapse, at which point markets around the world heated up their rallies as hopes and expectations for even more Central Bank action picked up. Just a few days after that GDP print and small-cap Chinese stocks were off to the races as fears of an Asian meltdown receded behind hopes for policy action out of Beijing.
The fears around Chinese GDP are that a larger-than-expected slowdown will sucker punch the global economy to the point that global growth stalls further from its already anemic levels. Last night, we received just our most recent piece of evidence that the slowdown in China is hitting more aggressively than originally feared as Chinese GDP printed at 6.8% versus an expectation of 6.9%. And sure, we’re talking about just one-tenth of one-percent here, but as always in financial markets, the context is pertinent. The table below shows how this 6.8% print to cap off the year reflects on China’s growth in comparison to the 25 years previous:
China’s story really starts in 1978 when the economy was opened-up in response to mass famines that had taken place under communist rule. As the economy began to open, green shoots popped up everywhere, and from 1978 to 2013, growth averaged between 9.5-11.5%. This Chinese growth story has been called a ‘miracle,’ when a down-trodden and starving nation was converted into a productive country with a pivotal role in the progress of the global economy. Since reforms were put in place in 1978 under Deng Xiaoping, China’s GDP has increased ten-fold.