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Things are looking up for China. The world's second-largest economy expanded by 6.4 per cent in the first three months of the year, just a little bit higher than economists' expectations of 6.3 per cent. So what does this mean for China? For one, it shows that concerns over a trade war with America are fading.
President Donald Trump backpedalled last month on vows to ramp up tariffs on Chinese goods, and the two countries are aiming to wrap up talks within a month. On the domestic front, the rosy gross domestic product numbers demonstrate that a stimulus plan is kicking into gear.
China usually waits until March to allocate local government bond quotas. This year, Beijing made sure that local governments were raising debt as early as January, in order to spend on infrastructure projects. To show they're serious about spending, local leaders raised $1.2tn renminbi.
That's about $179bn dollars in the first quarter. In the same period in 2017 and 2018, they didn't raise anything. There's also a $2tn renminbi tax cut coming down the line. Economists are mixed on whether the taxes will have a meaningful impact this year. Are there risks? Absolutely. The biggest is an unwanted surprise on trade talks with the US.
A bad deal, or no deal for China, could smash investor sentiment and also hurt exporters, which are the backbone of the Chinese economy. Economists aren't too worried about the Chinese property sector, one of the biggest contributors to GDP growth. Property sales have been rising, and so are prices, according to a recent survey.
But there are some signs of a slowdown in construction. Land sales were down in the first three months of 2019. That means developers aren't buying as much, and probably won't build as much this year. Any sharp, unexpected correction in the market would be devastating for growth in China.
There's also a chance the stimulus could get the better of China. If the trade deal with the US delivers a positive result next month, Beijing will probably need to tone down the spending in order to avoid excess debt growth.
