The Week: China GDP: time to panic?

There was much hand-wringing this week as China announced the slowest growth in almost 30 years. Should investors be worried?


  • China grew at 6.2% in the second quarter, its slowest pace in 27 years
  • China growing at 6.2% is adding more to global GDP today than it was 10 years ago when it was growing at twice the amount.
  • Retail sales, industrial production and fixed asset investment were well above consensus estimates

To put this in perspective, it still grew at 6.2% in the second quarter, but it was enough for markets to forget that the Fed was about to cut rates and head lower. 

A slowdown in China’s growth has consequences. The whole of Asia has become more dependent on China as intra-regional trade has grown. China is still an important source of demand for natural resources. Its weakness has prompted some to ask whether emerging market assets could be about to sell off. 

But investors shouldn’t get ahead of themselves. 6.2% growth does not represent an economy in trouble. While President Trump was quick to suggest that the slowdown put the US in a unique negotiating position, this was swiftly dismissed by those in the know. As Lu Xiang, expert on Sino-US relations at the state-backed Chinese Academy of Social Sciences, told the Financial Times: “We’ve always had bargaining room in the trade talks with the US. We are not prepared to make additional concessions just because we are facing downward pressure.”

Equally, it is important to remember that even if the rate of growth is slowing, the actual growth is still a huge number, more than enough to support other countries in the region. Some slowdown was inevitable, given the size of the economy. Mike Kerley, fund manager on Henderson Far East Income Limited points out that China growing at 6.2% is adding more to global GDP today than it was 10 years ago when it was growing at twice the amount.

He adds: “The stock market actually rallied upon the data’s release – not because of the headline GDP but due to the strength of some of the underlying subsectors. Retail sales, industrial production and fixed asset investment were well above consensus estimates suggesting that the economy is actually seeing tentative signs of a revival.”

There are clearly some signs of weakness. Manufacturing is undoubtedly being hurt by the trade tensions. Export data from Korea and Taiwan also suggests that growth in China is more modest. However, there is nothing in the data to give investors fright.