CHINA’S STOCK MARKET is sufficiently divorced from the real economy for its recent turmoil not to have deflected growth from its gradually decelerating glide path. The second-quarter GDP figure has come in at 7% year-on-year, unchanged from the first quarter.
That is squarely in line with the official full-year target of growth slowing to ‘about 7%’ from 2014’s 7.4%. Policymakers will feel that measures introduced since late last year to prevent the slowdown becoming too rapid are taking effect and that the economy though still sluggish — if 7% growth can be considered sluggish — is stabilising.
Property prices in the biggest cities have ticked up as has industrial production, albeit selectively. The slowdown in export growth is moderating and that of imports, too.
However, there are plenty of inventories to be run down before import growth starts to pick up again. Low commodity prices will also keep the import bill low. The trade surplus that results in this circumstance will have given a fillip to the second-quarter GDP number. So, too, will the brokerage fees generated by the panic selling in the stock market. Combined, those factors would likely have been sufficient for the number to the magic 7%.
New bank lending is rising, thanks to four interest rate cuts since Novermber, looser reserve ratio requirements, and some policy direction. However, loose monetary policy is doing no more than steadying the economy.
That, in itself, is not a bad thing; the policy objective is a managed slowdown to a sustainable long-term growth rate. It is certainly better than a renewed ‘sugar-high’ of investment in infrastructure of dubious necessity and even less certain economic return.
The question remains of how quickly China can rebalance the economy towards greater domestic consumption-driven expansion and away from its dependence on infrastructure spending and exports for growth.
Consumption is holding up, but little more. Progress on economic reforms is moving slowly, though the anti-corruption campaign is starting to take aim at more and more vested industrial interests that stand in the way on that front.
Labour-market reform no longer appears to be the priority it was last year. The leadership remains concerned that an economic slowdown that brought unemployment could spill over into the much-feared social instability.
There is, however, no sign of industrial unrest on the scale seen in the 1990s’ slump, even if job security in some areas of the economy has become precarious. The announcement of the quarterly GDP figure made a point of noting that employment is steady.
The stock market crash will apply another brake to rebalancing, in particularly on financial-markets reform, notably interest rate liberalisation. It is, however, unlikely to be a permanent one. In the near term, fiscal and monetary easing is likely to continue to sustain the stabilisation.