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10.5% GDP growth from China tomorrow will move global markets–but in which direction?

posted on January 20, 2010 at 5:15 pm
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  China is scheduled to release statistics on fourth quarter 2009 GDP growth tomorrow, January 21. And the consensus among forecasters surveyed by Bloomberg is that China’s GDP grew by 10.5% from the fourth quarter of 2008.

10.5% could just be too much of a good thing.

10.5% growth would put the government in a tough spot. On the one hand, Beijing wants to support growth in domestic demand as a counterbalance to the country’s export sector. That rebalancing would be hard to pull off if growth slows. On the other hand, the government wants to avoid further inflating a bubble in real estate, stocks and industrial assets.

It’s a problem that most of the world would love to have. But it is a problem none the less.

Back in November the country’s monetary policy committee said a 10% or higher rate of annual growth would be excessive. That implied that growth at that pace would lead the country’s central bank, The People’s Bank of China, to begin tightening the money supply.

More recently Premier Wen Jiabao has said that the government will focus on month-to-month data in setting monetary and economic policy. Wen seemed to imply that calculating an annual growth rate overstates the current speed of economic growth since it compares current economic activity with the economic trough in the fourth quarter of 2008 and the first quarter of 2009.

So how will market’s move on the number?

How Chinese—and other developing market stocks—react to tomorrow’s news quite probably depends on how the government frames the data. If it emphasizes an annual perspective and the degree to which the current quarter exceeds the annual 10% “speed limit,” investors are likely to see it as a sign that the government favors monetary tightening sooner rather than later. If it emphasizes the need to use month to month data and thus downplays any growth above 10%, investors are likely to see it as a sign that tightening will occur later rather than sooner. 

No doubt, though, that the number has the power to move global financial markets.

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  • ANGEL MERCADO on 20 January 2010

    Im heavily invested in China. It sounds like this could make me or brake me.

  • terryw on 21 January 2010

    Just in http://online.wsj.com/article/BT-CO-20100120-718828.html?mod=WSJ_latestheadlines
    Bank Of China Taking Steps To Rein In Loans

  • EdMcGon on 21 January 2010

    When you combine what you said with Terry’s link, you see that China has already taken the steps needed to slow down growth.

    One thing that bothers me is the equity markets seem to view “slower growth” as equal to “no growth”. In China’s case, that’s a HUGE mistake.

  • DJBarber on 21 January 2010

    It would be nice if they reined in over lending, popped the housing and stock bubble now, combined with allowing the currency to float against the dollar a bit. That would give the people a bit more buying power, make our goods a bit more affordable, and start to create a more sustainable recovery, both from the inside (Won’t have to depend on exports so much) and from the outside (Companies selling goods into China) Not to mention help to fix the trade imbalance to some degree……

  • DJBarber on 21 January 2010

    I think Jim would agree with that. In a nut shell, I paraphrased what he has said elsewhen and where…

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