Earlier this week, the sun rose in the east, the tides rose and fell, and China reported an economic growth figure that was “in line with expectations.” But whether or not China’s economy actually grew 6.8% (as reported) in the fourth quarter of last year, there was no option for anything else to be announced.
According to the Financial Times, “Fourth-quarter gross domestic product growth came in at an inflation-adjusted 6.8 per cent, according to the National Bureau of Statistics, placing the full-year figure at 6.9 per cent — in line with Beijing’s target of ‘around 7 per cent’ for the year and with economists’ expectations.”
As we’ve written, China’s growth targets are a constant obsession for the country’s government. They’re also a constant obsession for investors. A lot of stock markets around the world had their worst-ever start to the year over fears about China’s slowing growth. It’s also been a big factor in weak commodity prices.
Again from the Financial Times: “The data come as fears about China’s economy shake global markets and capital leaves the country at an unprecedented pace. Investors are eager for clues about whether slides in China’s equity market and currency depreciation at the start of this year were a sign of acute distress in the real economy, or whether policymakers can engineer a gradual slowdown that avoids financial crisis and social instability.”
For world markets, China’s GDP report was a high-stakes data point. Anything less than expected would have triggered another fall in stock markets around the world. China’s currency would have weakened more. The price of oil would have fallen more.
A lot of investors question whether China’s growth statistics are “real” – that is, whether they reflect actual growth, or whether they are wishful thinking. But this misses the point – because for China, what is “real” is what is reported, rather than the other way around. A shortfall in GDP wasn’t possible because it was going to be reported as being “in line”.
That’s because official economic growth rate targets (or “expectations”) have been central to policymaking in China for a long time. If an official target is set, growth is not the natural organic result of the many moving parts of an economy evolving. Instead, growth becomes the objective in itself. That’s the way things worked in the Soviet Union, before it collapsed under the weight of its own expectations.
China’s economic growth matters because it will continue to play a big role in how investors feel about markets. But the actual number isn’t all that important. No matter what, it will always be “in line with expectations.” The best news for investors, and the Chinese economy, would be for the country’s government to abandon growth targets altogether.