China Dujiangyan Gate

The Chinese economy saw its slowest growth rate in 25 years in 2016, how serious is this?

The Chinese economy grew by 6.8 per cent in Q4, year on year, according to data out this morning. This did in fact mark a mild pick-up from the previous three-quarters.

2016 may have been the worse year for the Chinese economy in a quarter of a century, but most governments would have given their hind teeth for that kind of growth. And while China’s growth may be slowing, at least this may be a sign of an economy re-balancing, moving away from the unsustainable export and investment led growth to an economy increasingly propelled by domestic demand.

The snag is that not many people believe the data. One region of China recently admitted to fudging the data it supplies.

Capital Economics has its own measure, which it takes by monitoring indicators which are harder to fudge, such as freight transport, and electricity output.

But its measure, which it calls the China Activity Proxy index, was not so far out, suggesting growth of 6.4 per cent in Q4. But it explains: “However, this is only because the economy has recently experienced a sharp recovery from a downturn that was never properly acknowledged by the GDP figures.”

Returning to the official figures, they do point to a slowdown in industrial production and investment. Growth in retail sales has picked up in recent months, going some way to reverse years of steady decline in growth. This does at least go some way to support the narrative of re-balancing.

Julian Evans-Pritchard, its China Economist, said: "while China’s economy is currently witnessing relatively strong growth, there are some signs in today’s data that momentum may have begun to soften at the end of last year. With tailwinds from policy stimulus now fading, we expect clearer signs of a renewed slowdown to emerge during the next couple of Quarters.”