Beast Mode: China’s GDP Is Going To Double

Yes, the trade war is a headwind for China businesses, with nearly 60% of business leaders in one survey saying it’s a negative for them. That won’t stop the Chinese economy from doubling this year from where it was in 2010. That’s “mission accomplished” for Beijing. For investors, China still looks to be in beast mode.

This week, the National Bureau of Statistics (NBS) in China revised their real GDP growth rate higher by 0.1 percentage points per year between 2014 and 2018 while leaving it unchanged for other years. The revision was expected following their revision of 2018 nominal GDP in late November. So at that, and based on the revised numbers of 0.1 percentage points more than they initially claimed to have grown, China just needs real GDP growth of 5.6% in 2020 to meet its goal of doubling real GDP between 2011 and 2020.

“It should be not difficult for Beijing to deliver above-5.6% growth in 2020,” says Ting Lu, chief China economist for Nomura in Hong Kong. His forecast is 5.7% growth this year, which is below consensus. Real GDP growth in 2019 was 6.1%, according to official numbers.

With the changes to the numbers, China’s GDP growth in 2014 through 2018 was raised one point to 7.4%, 7%, 6.8%, 6.9% and 6.7% mainly due to an increase in the services sector. Real GDP in the tertiary sector — which is made up mainly of professional services and retail operations — has been growing faster than that in China’s primary (commodities) and secondary (manufacturing) sectors since 2013.

Real GDP growth is growth discounted for inflation.

China’s real GDP numbers were unchanged by the NBS for the years before 2014 and in 2019.

China officials have been lowering their growth targets over the last two years, going from 6.5% to 6%, often hedging their bets with language like “around 6%” instead of calling a target and, somewhat miraculously, hitting it year after year.

Given the upward revisions, looming growth headwinds caused by the trade war, structural shifts in China’s economy, and limited policy room, it is almost certain that Beijing gives another “around 6%” target for 2020.

Beijing is unlikely to slash its growth target below that level for several reasons, says Nomura.

First, as many investors view official statistics with some scepticism, Beijing still needs to deliver relatively high GDP growth (instead of just revising statistics) to solidly deliver on promise.

Second, Beijing needs to send the right message to markets about its determination to deliver stable growth to avoid the risk of a negative spiral between weakening demand and business sentiment, analysts from Nomura wrote in a report dated January 20.

“Beijing can easily meet the doubling GDP target, (but) we believe it still needs to maintain or potentially increase its policy easing measures,” Lu wrote. China’s central bank is already quite dovish.

Despite the phase one trade deal getting inked and solid growth numbers all around in December, China has become increasingly concerned about future growth and has stepped up its monetary policy easing measures in recent months. This included a net injection of 300 billion yuan ($43.4 billion) through a medium-term lending facility on January 15, and a surge in local government bond issuance to keep capital markets chugging along.

Meanwhile, Beijing has shifted its focus more towards infrastructure and manufacturing investment now that supply chains are leaving the mainland, and Xi Jinping has called for better capital allocation rather than the old “bridges to nowhere” job creation policies of the past.

Ten years ago, China promised to double its GDP. It’s going to do that this year.

Meeting its growth plans by 2020 is no longer a concern for them. With that out of the way, “Beijing can shift its efforts to better balance the pace and quality of growth,” Lu says.