China GDP data show services growth flagging

7/19/16

China’s gross domestic product growth may have come in on-target in the second quarter at 6.7 per cent, but its composition deserves a second look now that more detailed figures are out on each sector’s contribution.

Data from the National Bureau of Statistics suggest that stimulus efforts by policymakers in China are feeding through as hoped to old-growth sectors of the economy, particularly manufacturing: after backsliding in the first quarter to annualised growth of 5.9 per cent, secondary sector GDP grew 6.3 per cent in the second quarter.

But the services sector appeared to have received little windfall from increased spending, continuing on a downward trajectory it began in Q4 2015 – albeit at a slower pace than in previous quarters: tertiary GDP notched a fall of 0.1 percentage points to 7.5 per cent in Q2.

Much of that fall derives from an unfavourable base of comparison. The second quarter of 2015 covers the upper reaches and peak of China’s stock rally, as well as a few weeks of tumultuous descent. That contributed heavily to revenues in financial services and delivered a huge boost to services sector growth.

Yet services GDP did grow on a quarter-to-quarter basis, rising by 25 per cent from the first quarter in constant-price terms while secondary sector GDP fell by nearly 22 per cent.

The catch is that much of that likely came from state-owned firms at the expense of private-sector expansion, as NBS figures from May show private companies’ fixed-asset investment contracting for a fifth straight month compared to continued investment growth from state-owned firms.

June data on FAI showed state-sector investment growth continued to hover above 23 per cent year on year for the year to date, holding on to gains after having previously jumped close to 10 percentage points in January.

Private investment, however, was up just 2.8 per cent year on year for the period as non-state FAI’s deceleration continued following a dramatic tumble at the year’s outset.

http://www.ft.com/fastft/2016/07/19/china-gdp-data-show-services-growth-flagging/