11th Jan.

2016
CHINA
ECONOMICS UPDATE
Economy slow but still stable despite market meltdown
 China’s equity markets continue to tumble, its currency is under unprecedented pressure and Chinese
policymakers’ reputation for competence is looking ever more tarnished. Contrary to many of the
headlines though, the economic data show no sign of major deterioration in recent months.
 There is little doubt that China’s economy is growing at a much slower rate now than in the recent past.
According to our China Activity Proxy, the economy grew by roughly 4.5% y/y last quarter, compared
with 7% a little over two years before. On these grounds, investors have reason to be downbeat. But
there is no sign of the more recent, deeper slowdown many argue must lie behind the stock market
falls and capital outflows. Indeed, much of the slowdown seems to have occurred a year or more ago.
 In the chart below we compare growth rates from the first half of 2015 with those for October and
November (the latest available) for a selection of indicators covering major parts of the economy. For the
most part they show that growth at the end of 2015 was little changed from average growth recorded
in the first half of the year, when the stock market was still rising. Our forecasts suggest that headline
growth rates for December will be slightly weaker than those for November (see our latest China Watch
for details) but not by enough to change the broad picture.
 In signalling that growth has remained stable, the chart also suggests both that the slumps in the stock
market in the middle of 2015 and again this month were not caused by any worsening of economic
conditions and also that last year’s equity collapse didn’t itself cause activity to slow. The one indicator
below that looks weaker now than in early 2015 is exports, a gauge of foreign demand.
 We’ve displayed in the chart the most high profile activity and demand indicators that analysts follow
each month. With some justification, many might question whether they can be trusted. For this reason,
we’ve added our China Activity Proxy (CAP) and a measure of exports from the US, EU and Japan to
China, based on those countries’ official data. Both should be less susceptible to manipulation than
more closely watched Chinese data. The broad picture though is much the same.
 In sum, growth on these different measures is much slower than a few years ago and in some cases
(notably trade) looks particularly depressed. But there is no support in the data for the notion of a
deepening economic crisis. China’s financial markets are in turmoil, but the same can’t be said of the
economy.
Mark Williams Chief China Economist (+44 20 7811 3903, mark.williams@capitaleconomics.com)

20 20
Key Monthly Indicators (% y/y)
15 15
Trading partner data
10 showing H1, Sep & Oct 10

5 5

0 0

-5 -5

-10 -10

-15 H1 Oct Nov -15

-20 -20
Fixed Retail Property Industrial Cap. Econ. Total Total Imports from
investment sales sales output CAP exports imports US, EU, Jpn

Sources – CEIC, Capital Economics. Notes – All in real terms except for trade data in renminbi.

China Economics Update