One of the main factors which dissuaded the Federal Reserve from hiking interest rates in Q1, as originally intended, was the turmoil on world markets caused by nervous investors worried about a slow-down in the world’s second largest economy, China. Fears of a significant Chinese slow-down prompted falls in the oil price and commodities as investors factored weaker Chinese and regional demand into their crystal balls. Whilst China watchers do have legitimate concerns over the health of the economy, debt, property bubbles and a myriad of other factors, growth (if you can trust the figures) seems not to be one of them.
According to the National Bureau of Statistics, Q3 growth came in slightly above expectations at 6.7% (on something like an $11 trillion GDP in 2015). By comparison, US GDP was about $18 trillion in 2015 and grew at a much more modest 1.3%. The Chinese economy has grown by 6.7% in each quarter of 2016 and remains on course to hit the government’s target for annual growth of 6.5 to 7%. Remarkably, that would put growth at a lower level than for 2015 which came in at the weakest level for 25 years. As the size of an economy increases, the absolute amount of growth (in Dollar terms) needed to produce a given percentage of expansion, of course, gets bigger – although the Chinese economy was starting from a low baseline.
The Chinese government has been trying to re-balance the economy away from being export led towards being consumer-led. It is now claimed that 70% of Chinese output is consumed within China, but (given the purchasing power of the average Chinese citizen) much of this is infrastructure development. This fact is underlined by the Chinese debt mountain which is nearly $5.5 trillion; roughly 44% of GDP (Trading Economics), by way of comparison, US debt is currently about 107% of GDP or $19 trillion.