Sieren's China: Stronger than presumed

The more China grows, the more important becomes the question of where the growth is from. This year's first quarter witnessed the strongest growth since the third quarter of 2015. China's GDP grew by 6.9 percent in the first three months of 2017. What's astonishing about this is that it was the industrial sector which was a driving factor. In March, industrial production grew by 7.6 percent more than in the same month the previous year – more than in the past two years. The accusation that companies indebted themselves too much in the process comes too early. To be indebted is not bad per se, only if the debts are not worth it and thus products are produced that cannot be sold. However, domestic demand is booming and exports are being kept in check. Two years ago, the world began adjusting to a new order after it became clear that the Chinese government might not be able to implement financial and economic reforms as fast as it intended. The global economy took a downturn.

Now, the growth suggests that the reforms are gradually taking hold and that the rollercoaster rides on the financial markets might be less bumpy, and such incidents as when shares fell by 30 percent on the Shanghai stock market two summers ago might be of the past.

High consumption contributes to growth

What is also astonishing is that despite the trade quarrels with the US and the tensions between North Korea and the US, which President Donald Trump has indicated could lead to a military strike, the Chinese economy is stubbornly making its way. Retail sales grew by 10 percent in the first quarter, despite weak car sales.

Car buyers seem to be waiting to find out how the regulations for e-cars will develop. The government subsidizes e-cars, for which it is easier to get permits than conventional gas-powered cars. Even though prices are not likely to go down anymore, the car trade show that began this week in Shanghai will show what direction e-cars are taking.

Last year, some 23 million cars were sold in China and this year estimates are that the figure will rise to 25 million. The figures related to consumption are particularly encouraging. Nobody is forced to consume, especially when there is low inflation, so the figures are all the more astonishing. Consumption is responsible for over two thirds of the growth.

Growth has also been spurred by an 18-percent growth in apartment sales. This sector will not grow much longer though: Beijing has introduced strict regulations to ensure that buyers have more capital before they are allowed to buy second homes in China's big cities, especially those where prices per square meter are highest.

But the point is that the state now has to prevent people from spending more money – not the other way around.

 

DW's Frank Sieren has lived in Beijing for over 20 years. He is the author of "Geldmacht China”.