It’s not all bad news coming out of China. “There is robust growth in China if you know where to look,” the Wall Street Journal reports without the least bit of irony.
Asia Unhedged has been saying this about the world’s second-largest economy for months now and bemoaning the negativity coming out of the Western media including the Journal.
On Monday, China reported that its third-quarter GDP grew 6.9%. Its slowest speed in six years. Meanwhile, government data show the services sector grew 8.4%, accounting for more than half of China’s GDP growth for the first time.
The WSJ said portfolio managers see a hidden gem in China’s booming service sector, which means’s that Beijing’s efforts to move the economy from one driven by manufacturing and trade to one led by domestic consumption and a service sector is being to show fruition.
The move away from manufacturing has sparked large declines in the prices of commodities such as copper, nickel and cement, however less-publicized metrics paint a more upbeat picture.
Government data show Chinese consumers spent more than 33 billion yuan ($5.19 billion) on movie tickets in the first nine months of 2015, a nearly 50% increase from the 21.9 billion yuan in the same period of the previous year, according to government data.
In addition, Internet traffic through mobile devices has nearly doubled. And railway passenger and civil aviation traffic have seen steady increases with the number or railroad passengers up 10%.
Updates on consumption and services can be infrequent and irregular, and official statistics may suffer from many of the same defects that have made analysts around the world skeptical of China’s economic data, reported WSJ.
Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington and a China expert told the Journal the most-recent figures, suggests that the rebalancing is on track.
“Investors have taken insufficient notice of China’s transition to its new model of economic growth,” Lardy told the Journal. Once data from the services sector are factored in, “it certainly doesn’t look like the Chinese economy is going over a cliff.”
The Journal said some investors believe the service sector may account for an even larger part of the economy, as the government statistics don’t include small businesses such as hairdressers or local restaurants, which often aren’t taxed.
“It’s hard to capture all the services and goods-related companies as they are emerging and growing,” Andrew Mattock, lead manager of the $850 million Matthews China Fund told WSJ.
“Though China’s overall economy is decelerating, there are pockets of strength,” Di Zhou, who helps manage the $10 billion Thornburg International Value Fund told the Journal, who said she recently bought shares of China Mobile, the country’s biggest wireless carrier.
“Current market perceptions of China may be more thoroughly divorced from facts on the ground than at any time in our nearly five years of surveying the economy,” Leland Miller, head of China Beige Book survey, which keeps tabs on more than 2,100 firms in China told the Journal.
Many believe pessimism on China has caused money managers to overlook important data. Twenty percent more Chinese companies reported higher earnings for the most recent quarter than reported declines, in line with the historical median, Jun Zhu, an emerging-market portfolio manager at Minneapolis-based Leuthold Group, which oversees $1.6 billion in assets told the Journal.
“China’s economy is not doing great but not tanking either,” she said.