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Shanghai Composite Index rallies following China’s Q4 GDP

While China’s market benchmarks soared within minutes of the GDP release, some analysts remain cautious in their outlook.

The Shanghai Composite Index rallied 0.37% on Friday morning (17 January), following the official release of China’s fourth quarter 2019 Gross Domestic Product (GDP).

At 10.15am, China’s primary benchmark climbed to 3,088.70, after having fallen to 3,078 minutes before the announcement.

For the three months ending December 2019, GDP grew six percent from the same period in 2018, in line with earlier estimates and the previous quarter’s growth rate of six percent.

Retail sales for December 2019, announced together with the GDP, rose eight percent year-on-year, surpassing a forecast of 7.8%. Industrial output – another telling set of data – grew 6.9%, well above the expected 5.9%.

The Shenzhen Component Index – the country’s second stock exchange benchmark – is also trading close to its 52-week peak (achieved earlier in the week), having soared 0.39% immediately after the GDP report.

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Caution recommended

While the local stock market’s immediate reaction indicates optimism, China’s economy grew at 6.1% for the whole of 2019, the lowest rate of growth since tracking began in 1992. Although this is in line with the government’s forecast, it also fell below the expectations of market watchers.

China’s economy took a beating in 2019, as a result of ongoing trade tensions with the US. This week, things finally moved forward, as both countries signed a trade deal to put aside their differences.

While global financial markets have reacted favourably to the deal, some analysts warn that it is too early to make any proclamations of recovery.

‘We recommend caution as downward pressures are still quite strong. Financial risks are still accumulating and Beijing’s room for policy easing may be smaller than markets hope’, said Ting Lu, Nomura International’s chief China economist.

Others also question the veracity of the GDP data. As Diana Choyleva, chief economist at Enodo Economics, told The Financial Times: ‘We need to look beyond the official headline numbers to the significant headwinds facing the economy’.

For example, the State Grid Corporation of China, the state-owned electric utility monopoly of China and the world’s second largest company overall by revenue, had predicted that China’s GDP growth could fall as low as four percent in the next five years.

China’s economy ‘stabilising’

Still, there are those who view the latest GDP figures as ‘positive’, arguing that the Chinese economy is taking a step in the right direction.

‘The outlook for 2020 is for continued robust growth, boosted by the phase one trade deal with the US and the continued positive impact of government monetary and fiscal policy stimulus measures,’ Rajic Biswas, Asia Pacific chief economist at IHS Markit in Singapore, tells Bloomberg.

Betty Wang, senior economist at Australia & New Zealand Banking Group, stated that China’s economy is ‘stabilising’ on the back of the trade deal, but that ‘there still exists great uncertainty in the long run’.

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