Avuncular Uncle Wen is always the man to send to uplift spirits and spread reassurance when natural disaster strikes or times are trying. This week, China’s prime minister has been dispatched to his home turf, the economy, which has just reported its seventh consecutive quarter of slowing year-on-year GDP growth at 7.4% in the third quarter. And he is at his most upbeat. He says the slowdown has stabilized, and the official target of 7.5% annual growth for the full year will be achieved.
When it was first announced in March that target seemed a ridiculous low-ball of a number, one that would be easily exceeded so that the outgoing leadership could hand over to their successors on a high note, at least as far as the economy went, and particularly in comparison with the ailing developed economies. But the managed slowdown in domestic investment, aka deflating the property bubble and stopping the local government debt bomb from exploding, has been exacerbated by the drop in demand from China’s export markets, and especially from its largest, crisis-wracked Europe. Policymakers have had to walk a fine line between stimulating the economy sufficiently to prevent growth slipping irrecoverably below the official target and reigniting the inflation they struggled so long to bring down. At the same time, they had to avoid inadvertently lighting any fuses close to the banks’ loan books.
Yet Wen is all public cheer: “Exports have gradually recovered, consumption has grown steadily, price inflation has clearly receded, the job market has been very good,” he said in a statement published just ahead of the announcement of the third-quarter GDP number. There are monthly numbers to back him up. Exports rose 9.9% year-on-year in September, while inflation dipped to 1.9%, well down from last year’s peak of 6.5%. Retail sales were up 14.2%. This Bystander is always wary that one month’s number is no guarantee of the performance of the next one, though we don’t doubt that the 7.5% growth target for the year will be met, by hook or by crook. But Wen looks likely to over-deliver by as little as it is now clear he under-promised.
Wen also pointed out in his statement that the government “had taken new steps towards structural transformation.” As to whether he has pushed the economy fast enough down the road to rebalancing and far enough so his successors won’t turn back, we’ll leave for another day.