China’s National Bureau of Statistics has postponed the release of 3Q GDP and September activity data, originally due to come out tonight (Monday) at 10 pm EST, with no indication of when the data might be forthcoming. This is highly unusual and follows the decision last week to also postpone monthly trade data (still not released). Consensus forecasts call for 3Q GDP to show an improvement y/y and sequentially.
The delay is no doubt linked to the ongoing 20th Party Congress (16-23 October) but there are several possibilities as to exactly how. Hypotheses include:
- The data are worse than expected, and authorities decided to delay the release lest a negative market reaction be taken as a lack of confidence in Xi and his underwhelming speech to the Congress on Sunday (see our coverage here). To this point, there are signs that Beijing is enlisting domestic asset managers to help support the markets this week.
- The data are fine/as expected, but authorities are still reluctant to release them close to Xi’s speech out of an over-abundance of caution and desire to control the narrative.
- This has nothing to do with the content of the data and is more due to bureaucratic delays and dysfunction from the Congress and its preparations (for example, statistical officials needing sign off from senior officials involved in the Congress).
At this point I can only speculate, and hypothesis #1 is certainly possible. Still, I would not be surprised in the least if a less-alarming hypotheses – especially #2 – is at work and that this is not an especially disappointing release.
It is hard to overstate the degree of political pressure on officials throughout China’s system to ensure that this Congress is a “success” and paints Xi and the rest of China’s leadership in a positive light. The desire to control the narrative and avoid any kind of surprise at all is intense.
The irony is that the diagnostic value of this particular data release is limited given an outlook so driven by policy – especially zero-Covid but also property policies. Until there is a pivot from zero-Covid (which we do not expect to start until March at earliest), containment measures will continue to weigh heavily on consumption, services and broader activity and confidence. On property, there have been a slew of loosening measures, mainly at the local level, but the underlying debt problems at private developers are growing worse rather than better, and there are no signs that the authorities are inclined to provide a robust financial backstop.
This data release also won’t reflect rising headwinds that will impact Q4:
- The risk of tightened Covid containment measures if necessary to control new/persistent outbreaks.
- Sapping fiscal stimulus. Local governments have limited additional quotas to expand their deficit spending and bond issuance, while their finances remain under heavy pressure from the property downturn and tax and fee cuts.
- Slowing exports, which will also weigh on China’s manufacturing investment.
With this outlook, a positive print for GDP and monthly data would likely not be a convincing sign that China is in the midst of a strong recovery. A very weak data print, on the other hand, would be fairly unequivocal in its implications, in that it is unlikely to trigger major policy support in the near term. Beijing has been largely reactive and behind-the-curve in its policy response in recent months and we expect this to continue over the next two quarters given:
- An ongoing government transition (which doesn’t end until March 2023);
- Doubts as to the effectiveness of more stimulus while Covid restrictions are in place; and
- Beijing’s concerns about exacerbating financial risks, including the potential for further monetary loosening to add to existing pressures on the RMB.
The silver lining remains the “help” that China is providing the Fed through weak demand that is keeping a lid on global commodity prices and inflation.
Finally, the very fact of China’s abrupt decision to delay GDP data is another reminder that China’s leadership, particularly under Xi, is not particularly amenable to or concerned with communicating to markets. There are real risks to this, including potential repeats of China’s botched exchange rate reform in August 2015, when a technical adjustment that was poorly communicated rocked global markets and led Beijing into a long and costly battle to regain confidence.
With thanks to Houze Song for his contributions to the analysis.
