China's GDP growth slows to 9.1% for the third quarter--that's good news in my opinion

10/18/2011 2:53 pm EST


Jim Jubak

Founder and Editor,

Asia stock markets weren’t amused, but if you’re waiting for evidence that the People’s Bank of China is about to stop raising interest rates and maybe even start cutting them, then today’s drop in China’s economic growth rate to 9.1% for the third quarter is good news.

A slower growth rate brings the central bank closer to saying it’s done with increasing interest rates to slow the economy and lower inflation, and that announcement, in my opinion, would set off a big rally in Hong Kong and Shanghai. (The People’s Bank has raised its benchmark interest rate five times in the last 12 months.)

That’s the future. For today investors are worried about slower growth becoming too slow growth. Economists had projected a drop to 9.3% for the quarter from 9.5% in the second quarter and 9.7% in the first quarter. The below forecast 9.1% growth rate rattled Asian markets today. In Hong Kong the Hang Sent Index closed down 4.2% and in Shanghai the Shanghai Composite closed down 2.3%.

There’s nothing in the underlying numbers, though, to suggest it’s time to worry about China’s economy coming in for a hard landing. Retail sales for September grew at a 17.7% annual rate, that was above the 17% growth rate for August and above economist’s expectations for 17.1% growth. Industrial production increased at a 13.8% annual rate. Again that was above the 13.4% growth rate in August and above economists’ projections for 13.4% growth.

I think an actual reversal of central bank policy will have to wait for the official inflation rate to come down further from September’s 6.1%. (That’s down from what looks like a peak of 6.5% in July.) But some economists are now projecting that inflation will take a big step down in the last months of the year. Deutsche Bank, for example, is projecting that inflation will drop to a 4% annual rate by December.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund , may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of June. For a full list of the stocks in the fund


Related Articles on STOCKS