The gamblers in Hong Kong and Shanghai sell on a report that a central bank advisor predicts growth will fall to 7.4% in the third quarter from 7.6%

07/23/2012 3:08 pm EST


Jim Jubak

Founder and Editor,

Chinese stocks plunged overnight on news that an advisor to the People’s Bank of China had predicted that China’s economy would grow by just 7.4% in the third quarter. That would be a drop from the 7.6% year-to-year growth rate in the second quarter, which was itself a retreat from the 8.1% growth in the first quarter.

Traders in Hong Kong and Shanghai weren’t amused. Hong Kong’s Hang Seng index fell 2.99% and the Shanghai Composite index declined 1.26%. European stock markets, with their own problems to worry about, dropped for the day with the German DAX index down 3.18% and the French CAC 40 down 2.89%.

The reaction in China’s stock markets isn’t especially surprising since everyone is trying to predict when China’s growth rate will bottom. The comments on the third quarter were disappointing to anyone who still believed that the second quarter would mark the bottom. And aroused worries that the third quarter wouldn’t be the bottom either. This disappointment is magnified, of course, by the nature of the Chinese stock markets, which frequently resemble a gaming table with everyone trying to figure out who has the hot hand. The degree of the retreat is a reaction to bets in the last few days that growth in the Chinese economy was going to rebound on new stimulus from Beijing.

Cancel out that reaction—if you can—and the news isn’t particularly earthshaking. The prediction of 7.4% growth comes from Song Guoqing, an academic member of the People’s Bank monetary policy committee. Your guess is as good as mine about how “official” that prediction might be. And to those of us looking for Chinese economic growth to bottom in the third quarter, the prediction doesn’t either counter or support that belief. What I’d really like to know is how third quarter growth rates will compare to those in the fourth quarter and how the month to month pattern will shape up in the third quarter. A 7.4% average growth rate for the quarter that showed growth slowing the most in September and then beginning to pick up in the rest of the quarter would be a very different indicator than growth that slowed consistently month by month during the quarter.

And nothing in this prediction speaks to those alternatives.

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