Driving the Day
1. Data dump – GDP
The stats bureau released Q4 and annual GDP data for 2019 on Friday morning.
The big headline:
- Real GDP grew by 6.1% last year – the slowest growth rate in 29 years.
Why we hate that headline 1: China’s economy has been undergoing a structural deceleration since 2012, as the economy matures and evolves, so the fact that that growth rates continue to be lower than in the past three decades doesn’t strike us as newsworthy.
Why we hate that headline 2: China’s economy needs to slow further in order to get onto a more sustainable growth trajectory – so this should be treated as a positive long-term development for China’s economy.
The number that matters more:
- Nominal GDP growth came in at 9.6% y/y in Q4 – up from 7.7% in Q3, and the highest print since Q2 2018.
Quick take: That jump wasn’t thanks to a genuine improvement in growth, but primarily due to higher inflation. As we’ve reiterated recently, there has beena string of strong economicdata recently – but we aren’t buying that the economy has stabilized just yet.
Get smart: Cyclical stabilization or not, structurally lower growth rates are a pre-requisite for building the type of high-value add economy policymakers want to achieve.
2.Data dump – monthly econ stats
We may be eating our hats soon – thanks to the December econ stats also released on Friday.
The December economic data built on the solid numbers from November:
- Growth of industrial production accelerated to 6.9% y/y – from 6.2% in November and 4.7% in October.
- Retail sales of consumer goods grew by 8% y/y – the same rate as November and up from 7.2% in October.
But here’s where things get a little nutty:
- Fixed asset investment (FAI) went through the roof, growing at 11.8% y/y – up from 5.2% in November.
- That was thanks to manufacturing investment which shot up to 9.2% y/y – from just 1.6% in November.
We wrote last month that November’s headline FAI number (which saw strong improvement) didn’t add up when you looked at the breakdown in property, manufacturing, and infrastructure spending, which were all flat or decelerating (see December 16 Tip Sheet).
This month, it’s the massive jump in manufacturing spending that doesn’t seem to comport with reality.
Get smart: It’s question marks like thisthat keep us from fully buying into the stabilization narrative.
Get smarter: That said, the December numbers weren’t too shabby overall, so maybe we’re wrong.
3. Wonk alert – PBoC edition
On Thursday, we highlighted the latest monthly credit data for December (see yesterday’s Tip Sheet) – underscoring that credit growth edged up marginally, but not enough to make much of a positive impact on the economy.
In our haste, we forgot to point out that the central bank (PBoC) also announced a slight update to its methodology.
As of last month, the PBoC has started to include the following into its calculation of Aggregate Financing to the Real Economy (or what we call total credit):
- Central government bonds
- “Ordinary” local government bonds – i.e. local bonds that are not special project bonds, which were already included in the calculation.
Some context: This marks the fourth adjustment to the methodology over the past 18 months.
More context: The PBoC updated the historical data series to January 2017 to reflect the change.
The upshot: It does nothing to change our analysis of what credit growth looks like, or that weak credit growth is a drag on the economy.
Get smart: The PBoC is on a long-term mission to improveits data collection and measurement of credit in the economy, which should in turn lead to improved policymaking.
4.Politburo discusses work plans for Party-state institutions
The Politburo met on Thursday.
On the agenda: Reviewing three documents.
First was a report by the Politburo Standing Committee (PBSC) on the reports it had recently heard by the Party groups at the:
- State Council
- Supreme People’s Court
- Supreme People’s Procuratorate
- Political advisory body
- Central Committee’s secretariat (January 8 Tip Sheet).
Why that matters: It’s a reminder that Xi has asserted the authority of the Party over the state.
Next the Politburo reviewed a report from the Central Leading Small Group for Inspection Work (IWLSG).
Some context: The IWLSG has been the workhorse of Xi Jinping’s anti-corruption campaign. It carries out inspections for the Party’s discipline commission (CCDI).
The meeting made clear that inspections will continue to be a prominent part of political life (Gov.cn):
- “The Party center attaches great importance to inspection work.”
- “General Secretary Xi Jinping personally studies and oversees [inspection work].”
Finally, the Politburo reviewed the most recent round of inspections by the IWLSG. The readout praised the group’s work but didn’t reveal any of the findings.
Get smart: Xi remains laser-focused on promoting – and enforcing – political discipline. He sees it as the central task in creating an effective governing apparatus.
5.Li Keqiang stresses need for policy implementation
Speaking of political discipline (see previous entry), on Thursday, Li Keqiang chaired a meeting of the State Council’s Party group.
The agenda (Xinhua):
- “To study the important speech given by Xi Jinping, general secretary of the Communist Party of China (CPC) Central Committee, at the fourth plenary session of the 19th Central Commission for Discipline Inspection of the CPC.”
Li pivoted quickly to his favorite subject:
- “The meeting urged transforming the government’s functions by deepening reforms that streamline administration, delegate power, improve regulations and upgrade services.”
- “The meeting also stressed reducing government expenditures, cutting taxes and acting against bureaucratism and the practice of formalities for formalities’ sake.”
Get smart: The Party’s discipline inspection system is no longer solely about clamping down on corruption. It is increasingly focused on overseeing policy implementation.
Xinhua:State Council vows to promote full, strict Party governance