China’s controlled slowdown story continues, but risks still remain: Russell Investments

Wouter Sturkenboom, Senior Investment Strategist at Russell Investments comments on China’s economic growth figures released today:

Wouter Sturkenboom

“Headline GDP growth at +6.8% is consistent with our expectation that reported 2016 GDP growth will be in the order of +6.5%. We were also heartened by house price data released yesterday, which continues to show a firming at the margin. Anything better than a collapse, is good news.

“Furthermore, we continue to attribute global commodity price weakness to supply excesses, in the first instance, and only secondarily to a slowdown in Chinese demand.”

“So far as national and international linkages are concerned, the connections between the Chinese equity market and the Chinese economy have been somewhat overstated. The links between Chinese growth, Chinese equities, and the yuan – on the one hand – and Wall Street – on the other – are more tenuous than is generally presumed.”

Risks still remain

“However, the language of today's GDP release was not reassuring. We would interpret the comment from the Bureau of Statistics that China's "employment situation is 'basically' stable" to mean that unemployment, and particularly unreported unemployment, is rising.

“In addition, we are seeing burgeoning bad debt problems in the iron and steel space, and a growing reluctance of the banks to roll over related debt, absent a Government guarantee.”