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Thoughts on Q1 GDP

April 28, 2012

China’s Q1 GDP figures have been out for a couple of weeks now. I’ve held off on doing a blog, partially because I don’t view Q1 as being a good basis for talking about 2012, also (and mainly) because I wanted to see what Q1 was looking like for the USA.

Advance US numbers were released by the BEA last night. They show a “slowing” of GDP from 3.0 to 2.2 percent, which is 50 basis points lower than forecasted.

Analysis of the period points to lower level of investment over the period. PwC, the accounting firm, called the period the “slowest first quarter of global M&A in ten years.” This was no different in the US,

In their report:

“The Life Sciences (biotechnology and medical device industries combined) and Clean Technology sectors saw marked decreases in both dollars and number of deals in the first quarter. However, there were double-digit percentage increases in dollars invested in the Consumer Products and Services, Medical Device, and Telecommunications industries. Additionally, investments into companies in the Later stage of development experienced an increase, rising 11 percent and accounting for 40 percent of total dollars invested during the first quarter of 2012.”

As the paragraph above implies, consumer spending took up the slack, rising by an estimated 2.9%. This was buttressed by better employment numbers and lower interest rates.

Inventory restocking was also reportedly up. However, this is a cyclical phenomenon that characterizes Q1s in most years, and, as I stated to begin with, skews Q1. Government expenditure is down on general fiscal tightening by Congress.

How does this affect the China numbers?

US GDP Element


Effect on China




Consumer spending



Inventory restock



Public spending



China’s GDP grew by 8.1% from Q1 2011. Industrial elements of the economy drove this growth.


RMB (Trillion)`











Domestic Total



Source: NBS

The Wall St Journal provides a good analysis of the numbers here. In particular they point to the uptick in consumption, which is now claimed, represents 75% of GDP. I’m skeptical about this as I believe CPI has been underreported by up to a third. The WSJ also reports that retail is down in China, inviting the question “where is the consumption coming from?”

In my opinion, China’s economy is more dependant on exports than the data show.

Returning to the USA GDP numbers, China has benefitted from increased US consumption. The chart below shows US imports from China since 2008, and in particular, that this quarter has seen continued growth in imports.

Q1 exports to USA are cyclically low, but trending higher with a growing US economy
China exports to US
This chart is from an overall report on US trade. It’s dated February and worth a read.  

We’ve been distracted by decreasing surpluses in Q1 China reported a Q1 surplus of 670 Mn), because, for their different reasons China and America want to show that they are trading less with each other. But they’re not. And one of these countries is masking the true extent of its economic difficulties.





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GCiS ( is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.


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