China is reporting growth of 6.8% for the first quarter of 2018 according to their National Statistics Office. Strong consumer demand combined with government infrastructure spending programs has been cited as the reason for the economic surge, though rising debt levels a cooling housing market, and the US/China trade war remain a concern.
The Chinese government predicted 6.5% growth, so on paper surpassing this total can be seen as a good thing, but traditionally China has had very steady and perhaps even polished economic figures, arguably done to seem a little more appealing.
Julian Evans-Pritchard, senior China economist at Capital Economics, said official figures "need to be taken with a grain of salt as they have been implausibly stable in recent years". Mr Evans-Pritchard did go on to say however that there is broader evidence that the Chinese economy did grow well, even if it wasn’t to the level suggested.
Shopping centre in Jiujiang, eastern China
A large part of China’s improved consumer demand is through online sales. Retail figures are up 10.1% but online sales growth is up over 35% in the last year alone, with market analysts Forrester forecasting the Chinese online retail market to hit $1.1 trillion this year.
Growth figures are always well received but China’s growth has its flaws. Debt levels are rapidly rising, which has in turn seen China’s credit rating suffer. People have been encouraged to spend but there’s only so far that credit can run before everybody demands repayment, which can trigger a chain reaction of debt recall and defaulting.
Industrial growth – especially in manufacturing – has been a big project for China to make them less dependent on neighbouring nations, but a serious increase in severe pollution across the country risks all the gains. If the workforce is made ill by the working conditions, then productivity and economic output will both drop sharply.
CHINA & GOLD:
Improved economic figures are good but it’ll take time for gold to see the benefits. According to the China Gold Association, private consumer demand for gold dropped by 5.4% (284.97 tonnes) between January and March this year, while investment gold bar demand dropped by a huge 27.6% (73.28 tonnes). The stock market bears the brunt of the blame, with the bullish markets taking up a lot of investor attention while the going is good.
In other regions, cryptocurrencies have also chimed in with stocks to take attention away from gold, but in China cryptos have been heavily obstructed. Initial Coin Offerings (ICOs) are banned, as is trading cryptocurrencies on domestic and foreign exchanges, so while owning cryptocurrencies is legal, obtaining them is incredibly difficult. The crackdown saw China move from being 90% of Bitcoin trading volume as of the end of 2016 to less than 10% by October 2017.
Cryptocurrency popularity in China was down to dissatisfaction with the banking sector, with big firms and state-owned businesses getting preferential treatment for financial support. Delving into cryptos was a way around this, but since the crackdown this opens up an avenue for gold and physical wealth ownership. Already China has seen a 5.6% increase in demand for gold jewellery, and an 8% increase in demand for gold coins. With a boost to economic output usually comes wage growth and increased spending capacity, which could see people turn to precious metals as an investment as a way of avoiding complex or unhelpful banking processes. Chinese consumers are showing there’s an appetite there, and if investors get on board too then we could see welcome boost to global gold prices.
