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China: No boom, no crisis

, October 24, 2015, 0 Comments

china-no-boom-no-crisis-marketexpress-inIt took us months to get used to the new times in China, but some still winced when Chinese economic data for the third quarter were released earlier this week: 6.9 percent. Not even 7 anymore! In the past three months, China’s economy has thus grown at the slowest rate for six years. However, most analysts reacted appropriately – calm and relaxed.

After the news, Germany’s DAX even rose to its highest level in a month. In Hong Kong, the stock market fell by only 0.6 percent, as did the index of the most important companies in Shanghai and Shenzhen. At the same time, the rise in the yuan is stopping the drain on Chinese currency reserves. The reason for the moderate reaction is that many analysts had expected worse, having been prey to their own exaggerated fears.

China missed its growth target of 7 percent in the last quarter. But the Chinese economic downturn is not doing any harm to the German economy, says DW’s Frank Sieren.

Pressure on trade from weak global economy

Even China’s retail trade turnover in September was a bit higher than expected, rising by 10 percent. In the past five years, the share of the services sector in the overall Chinese economy has risen by over 7 percent. This is very impressive, especially as Beijing wants to take the country in this direction. In the first three quarters of this year alone, the service sector’s value has risen by over 3 percent. So China’s labor market remains stable.

There is thus not a big crisis. Rather, it is failing growth and wide-ranging reforms that are putting a brake on the Chinese economy. Beijing is implementing the biggest set of reforms in decades. The economic downturn is being caused mainly by the fact that the global economy is having a rough ride. China’s foreign trade fell again by 8.8 percent in September. This is the figure that analysts are most worried about, along with imports, which dropped 17.7 percent, according to the National Bureau of Statistics in Beijing.

No hard landing expected

It’s clear that growth in the services sector can have only a limited positive effect on the drop in exports, but it can at least prevent a hard landing. This means that China’s downturn will have manageable consequences for Germany as well. Germany’s central bank, the Bundesbank, recently calculated that China’s economic growth would have to fall to under 3 percent to lower German GDP by about 0.25 percent. One reason is that the German economy is doing very well in other regions of the world.

It would get serious for Germany if there were a hard landing – that is, if there were growth of less than 3 percent. However, as I have said, nobody is predicting this. On the other hand, nobody is predicting that China will attain 7 percent growth this year, either. At a meeting with regional representatives ahead of the announcement of the GDP data, Chinese Prime Minister Li Keqiang even implied that it would not be “easy” to reach this figure, considering the cooling down of the economy. The boom is over, but there is still no crisis. China is somewhere in between.

DW’s Frank Sieren has been living in Beijing for 20 years.