The dollar is rising against the yen and Asian shares have rebounded on Tuesday following the release of Chinese GDP figures for the 4th quarter and full year 2015 that were close to consensus estimates and raised stimulus hopes for investors.
China’s Bureau of National Statistics reported today that China’s 2015 4th quarter GDP came in at 6.8 percent while their full year 2015 GDP was 6.9 percent, marking the lowest level since 1990 when China’s GDP tumbled to 3.9 percent for the year.
China’s central bank had a 7 percent GDP target for 2015.
China’s Bureau of National Statistics also reported on Tuesday that China’s value added industrial output rose 5.9 percent in December, down from 6.2 percent in November.
Concerns about China’s slowing growth have spooked global investors who relied on the world’s second largest economy for growth and massive government spending from 2007 -2009 when many other global economies were plagued by recession and government cutbacks.
China’s GDP in 2007 reached a record high of 14.2 percent while the majority of other global economies were contracting.
A year later in 2008 China’s GDP was 9.6 percent, still an impressive level.
China is the largest export nation in the world but its leaders in Beijing are seeking to rebalance its economy and depend less on exports and outside investment while developing more of a consumer based economy that has strong service activity.
China’s manufacturing industry is currently in a period of slowdown. Chinese PMI for December was in contraction below 50 for the fifth consecutive month and came in barely above a 3 year low while China’s service activity also grew at a slower pace in December.
Highly Leveraged Debt
China’s government has a massive debt buildup at a whopping $28 trillion, the largest in the world, and has quadrupled since 2007 when China only had $ 7 trillion in debt and a GDP at its peak with 14.2 percent.
Since 2007 the Chinese government has undertaken a large scale spending spree and their incoming tax revenues, which are used to pay down its debts, are bound to economic growth.
China doesn’t have a sophisticated tax system that includes capital gains taxes on its wealthy elite who have made fortunes in China’s stock market which is now officially in bear territory and remains under pressure following Beijing’s decision to devalue the yuan this month.
China’s large $28 trillion dollar debt pile has swelled more recently due to government intervention by propping up its overheated real estate market and its shadow banking industry which is now reportedly under some type of reform.
China’s currency is also heavily state controlled by China’s government and was devalued again this month after being devalued in August 2015.
On January 7th China’s central bank devalued the yuan to the lowest level since March 2011 to help revive growth after making 6 interest rate cuts in 2015.
Goldman Sachs Global Investment Team forecasts 6.4 percent GDP for China in 2016.
China’s central bank forecasts China to have a GDP between 6.5 percent and 7 percent for 2016.