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China's growth slowed to 6.5% in the third quarter of the year, the lowest rate since the global financial crisis. Shock! Do not! The slowdown does not suggest that something is wrong. It is insignificant in itself; the economy is still growing strongly. Above all, it is time for the world to stop obsessing about China's growth objectives and focus on what matters: the quality and sustainability of China's economic development.
Some might believe (or, in some quarters, hope) that the slowdown proves that the trade war between the United States and China is scathing. But this hypothesis is incompatible with the proof. The value of Chinese exports, in US dollars, increased by 14.5% in September, year on year. China also managed to post a record trade surplus of $ 34.1 billion with the United States during this month. We can think that commercial frictions will weigh heavily in the coming quarters. But that has not been done yet.
The decline in the growth rate also fell by 6.7% in the second quarter of the year. Nobody would consider such a slight difference to be significant in the case of another economy. No sensible person even believes that China's figures are accurate to two-tenths of a percentage point. Above all, the growth rate, if it is correct, remains extremely healthy. If the Chinese government had not made such a fetish of its growth objectives, nobody would worry about this "slowdown".
What matters is whether the nature of Chinese growth is changing. In the past, the Chinese authorities have achieved their goals by encouraging huge credit extensions. Too often, this resulted in unnecessary investment. Subsequently, this involved removing excess capacity and reducing debt. The growth generated in this way is only a waste. If the slowdown in current growth avoids this error, it is a gain, not a loss.
In fact, there are two important and beneficial factors behind the slowdown in growth: one seeks to end the tax benefits of car buying and the other to reduce the risks associated with the country's financial system.
The gradual elimination of preferential taxes on automobiles, combined with other market factors, has resulted in a sharp contraction of sales in the world's largest automobile market. This resulted in anemic growth of 6.4% in retail sales in real terms.
Even more important is the risk reduction effort of the financial system by narrowing the huge shadow finance sector and forcing credit-laden local governments to limit their borrowing. Limiting local authorities' access to credit has led to a drop in their infrastructure investments. This brought annual fixed investment growth to 4.4% in the third quarter, compared to 5.2% in the second quarter.
For the Chinese authorities, it is a bit worrying. Recently, they have expressed a desire to reduce credit somewhat. They allowed local governments to more aggressively exploit the bond market and reduce banks' reserve requirements for the third time this year, to lower interest rates and increase corporate credit.
The intention of the government is clear. A political bureau meeting held in August issued a statement calling for the stabilization of the economy in six key areas due to "changes in the external environment". These were employment, finance, foreign trade, foreign capital, investments and market expectations. Rightly, Beijing does not intend to trigger a credit wave, as it did after the 2008 financial crisis. But reasonably enough, it wants to maintain economic momentum and confidence, despite US pressures. The trick will be to do it while maintaining the necessary reforms and economic adjustment. Meanwhile, ignore the insignificant changes in growth rates. These do not mean anything.
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