China’s Impressive GDP Growth

Most of the press coverage and initial comments about China’s fourth-quarter GDP improvement of 8.9% centered on the fact that the expansion represented a two-and-a-half year low. Somehow, that caused concern that the number was not impressive. A better way to view it is what a surprise it is that it expanded so quickly.

China’s leadership may use the data as a reason to make money more available to businesses in the People’s Republic. That would tend to offset some of the slowdown in the world’s economy, although nothing can be a complete balance against a falloff in the global demand for China’s finished goods.

China 8.9% growth came without substantial monetary easing and in the face of deep trouble in Europe, which almost certainly undermined demand for exports from the world’s second largest economy. That left the U.S. and the developing world to help drive the 8.9% improvement, along with whatever internal demand existed among China’s middle classes and manufacturers. The U.S. economy rose in the past quarter, but not enough to help China much. Demand from nations like Brazil and India was not large enough in aggregate to represent the entire cause for the rapid 8.9% rise.

The question of China’s GDP should focus on internal consumer and business spending. It may be that factories continue expansion because of a belief that the demand for goods overseas will rebound. It is just as likely that a financially healthy middle class contributed to it. There are several reasons that may be the case, led by wage increases that have been prevalent during the last year.

China’s 8.9% GDP improvement is remarkable, particularly based on the massive size of the nation’s $6 trillion economy. China’s economic expansion rate may have slowed slightly, but not enough to undermine the fact that it is extraordinary in a world in which the GDP of developing nations is hardly above a flat line.

Douglas A. McIntyre