China’s GDP data lag stokes economic concerns

Away from the main stage of China’s 20th Party Congress, a press conference on Monday addressed the thorny issue of economic growth.

“The economy rebounded significantly in the third quarter,” said Zhao Chenxin, a senior official at the National Development and Reform Commission (NDRC), just a day before the release of new GDP data. The country’s performance was “outstanding,” he added.

But hours later, the government’s statistics department quietly updated its website to clarify that the data would be delayed, with no further explanation or comment. Economists had forecast growth of just 3.3 percent – well below the country’s long-term average and its annual target of 5.5 percent.

Seen in some quarters as an attempt not to distract from China’s biggest political event in years, the delay nonetheless came at a time when growth has become an uncomfortable topic in Beijing.

The Chinese economy – which for decades underpinned the Communist Party’s governance model and is recently on track to become the world’s largest – is being ravaged by a housing crisis and strict zero-Covid controls, which are dampening consumer spending with frequent and intense lockdowns to have.

“That below-average growth of just over 3 percent is probably the best they can do with tight Covid management and the strain from the real estate sector,” said Robin Xing, chief China economist at Morgan Stanley.

“The only meaningful policy leverage they have for next year is the change in Covid management aimed at reopening.”

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But the government, both at Congress and in the run-up to the event, has reiterated its zero-Covid approach and has refused to give a timeline for when it will reopen. A Goldman Sachs tracker of China’s Covid policy notes that cities with high- and medium-risk districts now account for 40 percent of the national gross domestic product, which it says implies “continued pressure on consumption and services in October”.

Aidan Yao, Senior Emerging Asia Economist at Axa Investment Managers, said the zero-Covid discussion is “retrospective” and the policy is likely to remain under the same name, even if there is scope to adjust its implementation.

Other releases, including those for house prices in China’s 70 largest cities, and customs data due on Friday have also been delayed.

Given Congress’ tightly controlled language, which typically focuses on China’s longer-term and higher-level ambitions, analysts are quick to spot omissions that suggest a shift in priorities. Research platform CreditSights said President Xi Jinping’s opening speech on Sunday did not cover market reforms, financial institutions and the data economy, which previous congresses have emphasized as important areas.

However, he said the country will “make better use of the fundamental role of consumption in stimulating economic growth” and address “unbalanced development”. Xing at Morgan Stanley indicated that the event has so far countered fears of a shift away from economic development towards energy, food and supply chain security.

“I would say the pre-convention concern in the market was that China might shift the political agenda away from economics,” he said. “But I think the narrative of the convention here allays those concerns.”

Xi reiterated the need to build a “moderately prosperous” society by 2035, which entails a GDP per capita equivalent to that of a middle-developed economy. Xing suggested that implied GDP per capita of $20,000 to $24,000 per year, compared to just over $12,000 in 2021. That would imply a growth rate of about 4.5 percent through 2035.

This week’s unreleased GDP numbers should come in well below this and could dictate a growth path at weaker levels than the 6 percent or more sustained in the decades leading up to the pandemic.

Axa’s Yao also noted the emphasis on economic development in Xi’s comments, including his “steadfast support” for private enterprise, which Yao said would be “a relief to many.” He suggested the tone marked the end of a series of regulatory and private sector crackdowns in 2021 that included the education and technology sectors.

While GDP may pose a challenge for Chinese authorities, other metrics are more promising compared to other major economies. At Monday’s NDRC news conference, Chenxin pointed to China’s “moderate” consumer price hikes, which stand in stark contrast to an environment of rising prices and interest rates elsewhere. Consumer price inflation was just 0.6 percent in September.

Policymakers gradually eased over the past year after real estate leverage was restricted in 2020, coinciding with the onset of a crisis for real estate developers. But weak price increases are also intertwined with China’s Covid restrictions and their dampening impact on spending.

For now, the lifting of tough Covid policies remains the main hope for a big spurt in growth – although that’s unlikely to materialize for several more quarterly GDP releases.