China’s economy grew at just an 8.1% rate in the first quarter–but traders in Shanghai saw that as modestly good news
China’s economy grew at just an 8.1% annual rate in the first quarter, the National Bureau of Statistics announced today in Beijing. That was a big deceleration from the 8.9% annual growth in the fourth quarter of 2011 and worse than the 8.4% growth rate predicted by economists surveyed by Bloomberg.
Bad news? Certainly talking heads in the U.S. and Europe seem to think so. They’re attributing today’s decline in U.S. and European stocks to this news of slower than expected growth in China. (New figures out this morning showing that Italian industrial production fell at a 6.8% annual rate in February compared to the 5.1% decline expected by economists might have something to do with the weakness in European markets. Hard to reduce your budget deficit when your economy keeps shrinking.)
Chinese stocks markets, though, don’t seem to agree. The Shanghai Composite Index did indeed pull back on the news, falling back to a 0.2% gain at 11:30 Shanghai time after advancing by as much as 0.5%. But the Shanghai market still finished up by 0.35% for the day. Hong Kong’s Hang Seng Index closed up 1.84%.
That may be because Chinese traders are thinking today the way that U.S. and European traders thought yesterday: bad economic news just increases the odds that central banks—in this case the People’s Bank of China—will intervene with a new program of monetary stimulus.
In the case of China traders didn’t have long to wait. While the GDP news was still in the air, the People’s Bank announced a 1-percentage point cut in reserve ratios for rural banks. Economists see the rural emphasis as part of the government’s program to rebalance growth away from the coastal region. But traders see it as a promise that another cut in reserve ratios for the country’s big commercial banks isn’t far behind. The People’s Bank last cut reserve ratios for the country’s big banks in February by 0.5 percentage points. (Yesterday the government announced that new bank lending in March had exceeded 1 trillion yuan ($160 billion), blowing away economist projections that new lending would climb to 790 billion yuan from 710 billion in February.) Speculation centers on another two reserve ratio cuts this quarter.
Traders in Shanghai and Hong Kong may also be thinking that first quarter GDP numbers are a bit stale and don’t pick up very recent evidence of a uptick in growth. In data also released today retail sales rose at a 15.2% annual rate in March, up from 14.7% in January and February. Industrial production climbed at an 11.9% annual rate, up from 11.4% in a combined January/February period.
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