A week ago, while documenting Xi Jinping’s muscular speech to open the 20th National Congress, I suggested key Chinese economic data for September, as well as figures ostensibly tallying third quarter growth in the world’s second-largest economy, should be discounted.
“With apologies for ignoring decorum, you can write the numbers off as managed,” I said, in “The King’s Speech,” adding that “this is among the most politically sensitive weeks in decades for China. The data will reflect that.”
As it turns out, the data didn’t reflect that. Because it wasn’t released. China delayed the dissemination of the crucial figures and gave no indication as to when they’d be made public.
Of course, no explanation or new release date was necessary. Everyone knew why the numbers were delayed and also when they’d be delivered. Xi was in the process of consolidating power and establishing one-man rule at the Party congress, and he didn’t want any sort of distractions. As soon as the job was done, the data would be foisted upon markets with no warning.
That’s precisely what happened early Monday, and I’ll confess to being reluctant about documenting the figures. The numbers have always been a “wink, wink” affair, but going forward, you’d be totally justified in treating all economic data out of China the same way you’d treat inflation figures out of Turkey.
With that in mind, the Chinese economy allegedly expanded 3.9% during the third quarter (figure below), considerably better than estimates, albeit nowhere near the Party’s original target for 2022, and a mile from the pre-COVID pace.
Note that the man who oversaw the COVID curbs which torpedoed growth in Q2 (red arrow in the visual, above) is now in line to replace Li Keqiang as premier.
I’m sure analysts were still parroting some version of Xi’s “I promise we’re still doing the whole ‘opening up’ thing” narrative on Monday, just like I’m sure a lot of market participants are clinging to the notion that Xi will eventually abandon his quixotic approach to virus containment.
Although I do think “COVID zero” will become totally untenable, leading to the relaxation of the strategy, that really misses the point. The new Standing Committee is, as far as I can tell anyway, devoid of economic expertise. That’s actually fine (because, as regular readers are well apprised, I think the idea of “economic expertise” is an oxymoron), but what’s not fine is the apparent lack of people who are even concerned about the economy.
At the least, we can say that the new Standing Committee and Politburo (figure above, for reference) will be predisposed to putting ideology in all its various manifestations first. That may or may not mean prioritizing the economy, depending on whether bolstering growth is seen as the most pressing issue for advancing Xi’s vision (or “thought,” as he’d probably prefer I describe it).
It’s not obvious that outside observers will be able to discern when the economy will take precedence and when it’ll be subordinated to other, more pressing concerns. Concerns like virus containment, yes, but also foreign policy concerns and concerns around domestic political imperatives.
Retail sales figures for September, also released on Monday, were lackluster. Spending rose 2.5% YoY last month versus 3% expected (figure below).
You could argue that the release of disappointing retail data is evidence the numbers aren’t managed, but then again you might also suggest that if the NBS is telling markets retail sales were lower than expected, the real figures are probably even worse.
Industrial production was much better than anticipated, rising 6.3% versus 4.8% seen, and fixed asset investment from January through September was 5.9%, basically in line (that figure is almost always in line).
The unemployment rate moved up to 5.5%, which is notable. It was the first increase in five months. Outgoing premier Li was very concerned about that level of urban joblessness earlier this year. Starting in early 2023, he can voice those concerns to nobody from retirement.
Meanwhile, trade data (which is a little harder to fake because trade involves two parties) showed export growth decelerating again, to just 5.7% last month (figure below). That was better than consensus, but still suggested a slowdown abroad is likely weighing on shipments.
Imports rose 0.3% (so, basically flat) perhaps underscoring domestic demand concerns, although I won’t pretend that’s the definitive takeaway, given the sheer number of factors that influence the trade numbers.
Note that trade data is usually released before monthly activity figures, which means the September export and import numbers came on an even longer delay than the retail sales and industrial output data.
According to ING’s Iris Pang, the “biggest takeaway” was that “COVID is still driving the economy.”
Forgive me, but I think COVID might be getting a bad rap on this one. Xi is driving the economy. And that’ll be even more true now that he’s established one-man rule.
China is a command economy, yes. But now it’s a commandment economy, too.
