What's going on?
China announced on Monday that its economy grew 6.6% in 2018 – its slowest expansion in 28 years.
What does this mean?
The world’s second-biggest economy hasn’t grown this slowly since way back when the first web browser was created in 1990 (and its population growth last year was also the slowest since 1961) [tweet this]. But China’s data was in line with what analysts expected – for both the whole year and the fourth quarter.
There were some signs that economy-boosting interventions from the Chinese government are starting to have an effect. Factory production was up more than expected in December, as were retail sales. But while Chinese policymakers have pledged more support in 2019, it’s likely that things will get worse before they get better…
Why should I care?
For markets: China’s a big cog in the global machine.
China has generated nearly a third of global economic growth in recent years, and slower days at home have had a widespread impact – hitting the sales expectations of global companies like Apple. But stocks in Asia rose on Monday’s news: the brighter spots in China’s data could mean that companies’ forthcoming fourth-quarter earnings won’t be as bad as feared. Much of the country’s – and the world’s – future economic growth will, however, depend on the outcome of trade talks with the US, which appear to have stalled.
The bigger picture: A lot of debt is risky business.
Incidents of Chinese companies missing debt payments hit a record high in 2018 – nearly triple 2017 numbers. Almost 90% of these “defaults” were on private company bonds – which have been subject to stricter rules recently as the country tries to rein in debt. And it’s not just China: defaults may soon rise in the US, too, with more risky corporate debt out there than before the last financial crisis. Investors and banks buying such bonds may demand higher interest rates or avoid them altogether, making it tougher for companies to spend their way out of potential trouble.