A Broader Perspective on the Third Quarter

Last week has seen a confusing mixture of signals concerning the development of China’s economy (see Friday’s blog post). As 2012’s third quarter – the last before the big leadership transition – draws to a close, what can be said about the nation’s growth prospects?

A look at the numbers shows that the annual 7,5% growth rate targeted by the government seems more and more like a realistic outcome as the year progresses. As mentioned in last week’s post, positive retail sales, export and industrial output numbers on Thursday were followed by sobering data concerning FDI on Friday. (This week, new figures are making their way into the headlines: while property loans have been going up, strengthening the construction- and infrastracture-related sectors, the Ministry of Finance today reported a decline in tax revenue – news that immediately caused Shanghai Composite Index stocks to fall.)

The most relieving fact here might be that FDI does not account for a portion of Chinese growth as big as many would estimate. Actually, it has been surpassed by domestic consumption in 2001 and has not grown in proportion ever since. This shows that out of contradicting figures, the ones that allow for an optimistic outlook (exports, industrial output) matter more than those who do not (foreign investment). China’s growth is increasingly being driven by its government’s and citizen’s demand, not merely by capital from abroad.

Given the broader context of formerly skyrocketing growth cooling down this year, China’s economic development is still unlikely to stagnate, let alone fall off a cliff anytime soon. A continued decline in FDI will probably not change this substantially, considering that its share in Chinese growth is declining as well.