China's GDP grew by 4.9% in Q3, new figures show on Monday, one of the best rates in the world. But it is nevertheless a top-line figure that disappointed economists. They had been forecasting growth of about 5.5%, Commerzbank says, up from 3.2% in Q2.
Chinese stocks fell on the underperformance. The CSI 300 of the largest companies in Shanghai and Shenzhen dropped 0.8% by mid-afternoon, continuing to slide all day from the moment the figures came out. The Chinese yuan also lost ground, which is actually a positive development for the central People's Bank of China, which has been trying to curb its gains against the U.S. dollar.
It's ironic that the source of the Covid-19 pandemic is coming out of it best. The fresh figures from the National Bureau of Statistics show that China's economy grew 0.7% for the first nine months of the year.
A spokesperson from the bureau admitted that the rebuilding process is lopsided in favor of heavy industry.
"Internally, the economy is still in the process of recovery," Liu Aihua said at a briefing in Beijing. "Some or most of the indicators have not returned to the normal growth level, and some of the cumulative growth rate has also declined."
The recovery in China is built on industrial performance, and Chinese consumers remain reticent, unwilling to go straight back into "normal" mode after such a scare. Over the Golden Week holiday at the start of this month, tourism was at 79% of the pace of 2019 - good, but not nearly as impressive as the figures from hard industry.
Industrial output grew 6.9% in September, the stats bureau said, while retail sales rose at half that rate, 3.3% for the month. Although the retail numbers were up from 0.5% in August, and the strongest pace since the whole pandemic began, it is churning out widgets, bolts and cell-phone parts that is driving China right now.
That's how a command economy works. The Chinese Communist Party ordered factories back into operation before they were even willing to bring their workers into the workshop - and before the factories had orders. The CCP is obsessed with keeping people in jobs, since unemployment breeds discontent, and discontent breeds dissent against the party, which retains staying in power as its primary goal.
The Beijing bigwigs are desperate to keep those growth figures nice and shiny. They have massaged economic data in the past, leaving economists watching gauges such as electricity usage to see what's really going on. Many local Communist Party officials have their performance measured against economic output, so there's an onus on them to get state-owned enterprises back in business.
So we should read the top-line positive numbers with skepticism. The direction is what is important: we can say for sure that China's economy is coming back faster than any other major developed nation. The pace is also picking up.
China has been keen to build up its domestic economy, pressure that has built under President Donald Trump. But in managing the country's rebound from Covid, the Communist Party has fallen back on the old Soviet-style five-year planning and churning out stuff to sell to the rest of the world. The problem with the long-run prospects for that tactic is that the rest of the world, still grappling with the pandemic, isn't buying right now.
The International Monetary Fund forecasts growth of 1.9% for this full year for China, with Oxford Economics suggesting there could be some upside to 2020 growth with a 2.3% forecast. That's down from 6.1% in a pre-pandemic 2019.
The 2020 full-year figures would make China the only major economy to increase its economy for this year, with the IMF predicting a 4.4% contraction in the global economy. But China's numbers would also result in the slowest pace of growth since 1976, when China was in the final throws of the Cultural Revolution. Q1 resulted in a 6.8% shrinking in the economy, the first contraction since China started keeping quarterly data in 1992.
Investors still look to play the recovery with new-economy stocks. Reuters reported on Monday that the Alibaba Group (BABA) fintech affiliate Ant Group has won approval from Chinese securities regulators for the Hong Kong portion of its initial public offering, the first to simultaneously take place on Shanghai's Nasdaq-style STAR Market. The IPO, at around US$35 billion, may well be the largest in history.
The company will seek approval from Hong Kong stock regulators on Monday, according to Reuters, which cites "two people with knowledge of the matter," probably investment bankers working to promote the stock sale. With marketing due to start this week, the IPO may take place "a few days" after the U.S. election on November 3, Reuters reports.