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Five things to watch when China releases fourth-quarter GDP

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Via Financial Times

On Friday, China’s National Statistics Bureau will, for the first time in almost two years, release quarterly economic figures without the spectre of Donald Trump looming over the proceedings. 

Since April 2018, China’s quarterly GDP releases have been scrutinised for the impact of trade frictions with the US, with concerns focused on the outlook for the world’s second-largest economy if Mr Trump chose to slap punitive tariffs on imports from China. 

Over this two-year period, China’s quarterly growth rates fell steadily from 6.8 per cent in early 2018 to 6 per cent in the third quarter of last year. 

A “phase one” trade deal between the two countries, completed on Wednesday when Mr Trump met Chinese Vice Premier Liu He in Washington, should ensure Beijing will not have to worry about a further escalation in the trade war for at least a year.

Here are five things to look out for when the NBS releases its estimates for fourth-quarter and full-year economic growth. 

Did China’s GDP grow by less than 6 per cent in the fourth quarter? 

The Chinese government should comfortably hit its full-year growth target of 6-6.5 per cent for 2019. In the first six months of last year, GDP grew 6.3 per cent before slipping to 6 per cent in the third quarter. But the last figure suggested that quarterly growth could slip below 6 per cent for the first time in decades. 

This could mean that, even with a trade war reprieve, Beijing could struggle to hit its 2020 expected economic growth target of “around 6 per cent”. The 2020 target will not be officially confirmed until Premier Li Keqiang delivers his annual work report to the National People’s Congress in March. 

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Will the 2020 growth target be the last one Beijing issues?

When Mr Liu, Mr Li and President Xi Jinping came to power in late 2012, they inherited an unhelpful homework assignment from their predecessors. In 2010, the previous administration of President Hu Jintao said China’s economy would double by 2020. The economic growth targets set every year since then have been aimed at achieving this goal

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Critics, however, contend that such targets have forced the government to pursue a growth-for-growth’s sake agenda over the past decade, unleashing unnecessary and debt-fuelled investment binges to reach an arbitrary goal. 

It is possible that there will be no such target for 2021 or indeed throughout China’s next five-year plan period (2021-2025), with the government much more relaxed about growth rates as long as the economy generates enough urban jobs each year to sustain high employment. 

Will China’s fourth quarter and 2020 growth figures be flattered by ‘outbursts’ of industrial output?

Last year China’s higher than expected first-quarter growth of 6.4 per cent occurred after industrial output growth, which had averaged 5.3 per cent in January and February, surged to 8.5 per cent in March. 

The same pattern was seen throughout the rest of the year with industrial output similarly spiking in the final month of the second and third quarters — reaching 6.3 per cent in June and 5.8 per cent in September. 

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How will the central bank contend with a growing gap between consumer and producer price inflation?

Consumer price inflation was just 1.6 per cent at the beginning of last year but had surged to 4.5 per cent by November. This has been largely driven by soaring prices of pork and other meats as African swine fever devastated China’s pig herd, by far the world’s largest. 

Producer prices entered deflationary territory in July and have remained there ever since, although they have started to recover over recent months. 

In response to these opposing pressures and worried about triggering yet another debt-fuelled investment cycle, the People’s Bank of China has refrained from across-the-board interest rate cuts. Instead, it has favoured “targeted” cuts in bank reserve rates provided the freed-up capital flows to specific sectors of the economy such as agriculture and small and medium-sized enterprises. 

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How many babies were born in 2019?

China’s end-year statistics include births. Last year just 15.2m babies were born in the world’s most populous country, the lowest number since the Great Leap Forward famine of 1959-61, which killed an estimated 35m-40m people. This year’s figure could be even lower, raising once again the prospect that China “will get old before it gets rich”. 

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