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  1. Home
  2. / Markets
  3. / China

Shocker: China's Economic Growth Comes Out Exactly as Planned

China's first-quarter GDP came in at ... you guessed it, exactly as forecast.
By ALEX FREW MCMILLAN
Apr 15, 2016 | 08:00 AM EDT

Correction: A previous version of this story incorrectly stated the projected dollar-figure growth of China's economy this year as $1.1 trillion. The correct figure is $650 billion, not $1.1  trillion. 

Well, well well.

China announced its first quarter GDP figures mid-morning Beijing time on Friday, and guess what? The figure was 6.7% -- precisely what the analysts were expecting. 

That fits exactly within the growth forecast of 6.5% to 7% made by Premier Li Keqiang at last month's big party meeting. 

I don't want to say "I told you so." But I told you so, in yesterday's column "Friday's GDP out of China Likely to 'Surprisingly' Not Surprise."

It's easy to hit targets with a planned economy. The 6.7% figure is conveniently slightly below the 6.8% figure for the fourth quarter of last year. It's a decline, but not a scary one. It is also the slowest quarter since 2009, and the fallout from the global financial crisis. (Out here we call it the Western financial crisis. We had our own Asian financial crisis in 1996-97 that stripped the debt fat from Asia's bones.)  

China's growth of 6.5% for 2016 would be the highest in the world, bar India's impressive 7.5%, if the number falls in line with the International Monetary Fund's latest forecast. But in China, we're talking about a significantly larger economy, the second-largest in the world at US$10 trillion. It's a sure thing the Middle Kingdom will surpass world leader the United States and its US$17 trillion economy sooner or later. At 6.5%, probably sooner. 

India ranks somewhere near the bottom of the top 10 economies in the world depending on whose numbers you prefer. But its GDP is only $2 trillion. So China's anticipated growth, at least according to the IMF, would hit $650 billion this year. India's would amount to $150 billion or so. 

So China's growth for this year would be the rough equivalent of the entire economy of Saudi Arabia, Argentina or Switzerland. In 12 months.

China's economy expanded in the double digits for virtually two decades. That was clearly unsustainable, as China's economic power grew and grew. 

That's all well and good. It's clear that now China's economy is no longer hitting that pace. It's for a good reason. The numbers are hurt by painful reforms taken by the government to reduce industrial overcapacity and shift the economy away from a reliance on manufacturing exports toward services and domestic consumption.

How accurate is the 6.7% quarterly figure? It is certainly eerily close to what the government essentially ordered at the National People's Congress last month.

You can tell something from the movement of the markets, of course. Two hours after the announcement, the Shanghai Composite Index had shown a "massive" over-reaction: a loss of 0.29%. The biggest gainers after this reassuring growth were Yechiu Metal Recycling (China), Xinjiang Tianhong Papermaking and Dalian Dayang Trends, companies I have never heard of. And that the bulk of the 1.3 billion people in China have never heard of, either. 

How much "smoothing" goes into making sure China hits those targets? Back in 2008 and 2009, China pumped 4 trillion yuan ($586 billion) of its deep coffers into the system after it became clear most of its major export partners were in serious trouble. 

China says it now needs to sustain the current rate of growth. "Our country's development faces more and greater difficulties ... so we must be prepared for a tough battle," Premier Li said at the party congress. Reuters reports that Beijing plans to lay off 5 million to 6 million state workers over the next two to three years, in a staunch effort to knock some life into poorly run "zombie" state-owned enterprises that continue to wander the country. 

How much money is Beijing pouring into the system now, to make sure it keeps a cap on joblessness and people demonstrating in the streets? To reassure the homeowners Mr. and Mrs. Chan that their apartment's price isn't going to crash? That is anyone's guess. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, McMillan had no positions in any Chinese equities.

TAGS: Investing | Global Equity | China | Markets

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