China: slightly better-than-expected growth provides the authorities with leeway

CHART OF THE WEEK

Every quarter, China is the first of the major countries to publish its growth figures and last week it indicated that year-on-year GDP growth came in ahead of expectations at 6.9%, matching its first-quarter level. The services sector posted better growth than the rest of the economy, which has been the case for almost three years. In addition, June’s business indicators are positive across the board, for retail sales, investment and industrial output.

OUR ANALYSIS

Healthy growth figures for the first year-half, as well as buoyant momentum towards the end of the period, suggest that China will have no difficulty reaching the government’s official +6.5% target growth rate for 2017. This gives the government leeway for tackling issues surrounding the financial system. During the recent National Financial Work Conference (14th-15th July), President Xi Jinping underlined the major principles guiding action in this area, including ensuring the financial system serves the real economy, anticipating and managing financial risk, and deepening reforms. While few concrete measures have been announced, aside from establishing a commission to oversee financial stability and development and bolstering the PBOC’s regulatory powers, the authorities appear to be trying to curb state-owned company and local authority debt levels. Recent developments indicate that a shift is already underway, although in recent years, whenever the authorities have been confronted with an economic slowdown, they have tended to loosen credit conditions.

 

The opinion expressed above is dated 26 July 26 2017 and is liable to change.

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Julien-Pierre Nouen

Directeur des études économiques et de la gestion diversifiée