What's going on?
New data on Friday confirmed that the Chinese economy was hogtied in the last year of the zodiac cycle – but shrewd investors might hope it’ll scurry ahead during the upcoming Year of the Rat.
What does this mean?
Friday’s figures showed China’s economy grew 6.1% overall in 2019: its weakest year since 1990. The country blames trade war with the US, and as tensions ebbed, growth did seem to stabilize: China’s economy grew at the same pace last quarter as it did in the previous one.
December’s performance was particularly positive. Investment shot up, particularly in manufacturing, while industrial output rose 6.9% compared to a year before – significantly more than the 5.9% analysts expected. That may be partly down to the early Chinese New Year frontloading production to December. Still, the green shoots of winter, which included higher-than-expected retail sales, may leave panda bears bamboozled.
Why should I care?
For markets: The slowdown should slow down.
China’s importance to the global economy meant markets worldwide were cheered by its rosy end to the year: December’s strong performance, combined with the preliminary trade deal signed with the US last week, could help things pick up in 2020. And while analysts expect the Chinese government’s growth target this year to be lower than 2019’s, the pace of deceleration should slow (tweet this). That’s partly thanks to significant extra spending on domestic infrastructure projects.
The bigger picture: A looming plague.
China’s engaged in a
Herculean Mulanese effort to shift its economy away from a reliance on investment and towards Western-style consumption. That’s not quite going to plan: consumption contributed less to China’s growth last year than it did in 2018. Income growth, a prerequisite for increased consumer spending, disappointed in the Year of the Pig when accounting for inflation: the rise in the prices of goods and services was higher than normal thanks, aptly, to a pork crisis. And China’s working-age population actually shrank last year, signaling an uphill battle ahead.