The Chinese economy grew at 5% last year. This is unbelievable rubbish, the China critics say. The figures were massaged and manipulated, the critics shouted loudly, because any growth shows their dire forecasts of China’s economic collapse in 2024 have failed to materialise.
Just as with the US and UK, the growth figures are undoubtedly a careful construct. US economic growth figures are routinely quietly downgraded several weeks after their official release. Some developed countries change the definition of unemployment so the new calculations look better. The UK growth figures are so anaemic that any calculation is closer to a statistical error than it is to reality.
But what is important about the China growth figures is the consistency of calculation. This means that figures from 2020 can be compared with figures from 2024 with a high level of confidence. The calculations may be flawed, but they are flawed in the same way each year, so the data set, flawed or not, is always comparable.
Economy slowing down
The 5% growth figure shows two things. First, the economy is slowing down — no surprise there. However, it is not on the verge of collapse and the Chinese government is not under threat of an uprising based on popular dissatisfaction.
The economic slowdown is due in no small measure to the reorientation of the economy towards a fully-fledged digital economy. This is a massive restructuring, well-identified with terms like “new forces of production” used in official documents. Many commentators dismiss these as meaningless slogans, but this is a mistake.
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There is a genuine commitment to developing these new digitally based forces of production. Artificial Intelligence (AI), quantum computing, green technologies and digitalised industrial processes are the exciting new investment and growth areas in 2025.
The best example of this economic reorientation is the explosion of electric vehicle (EV) technology and production last year, which appears to have come from nowhere. It is an overnight success built on a decade of research that, at the time, many dismissed as unproductive.
This year, we can expect to see the same explosion of advances and applications in new digital and technological areas. The momentum of these advances was hindered, but not halted, by the imposition of sanctions on semiconductor chips. The not-unexpected result was an acceleration of Chinese capability in these areas.
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This year will see these new forces of production burst onto the world stage and markets. These represent good trading and investment opportunities.
The second feature shown by the 5% growth rate is the inevitable long-term reduction in China’s growth to more closely match global averages. This comes as no surprise and China’s record of sound and strategic economic planning suggests policy developments are already carefully considered and implemented.
Although somewhat contradictory, the move towards global growth rates will result in new sectors which outpace the general smoothing of GDP growth. The US provides evidence with the new technologies sector vastly outperforming the general US GDP growth rate. Investors will need to carefully watch sectorial growth in China to identify those areas that will thrive in an era of slower growth rates in China.
Reading between the lines
Can’t read Chinese? Don’t worry. This is not a necessary skill when it comes to identifying investment opportunities and sectors in China. Much can be gleaned from the official statements of policy because, unlike Western policy statements, policy statements in China are usually implemented in full. These statements are not aspirations; they are plans. They point to which areas will be supported by the government where bureaucratic hurdles will be lowered and productivity can rapidly increase.
Pay careful attention to the “slogans” in official speeches that are so often dismissed as meaningless propaganda. These “slogans” are carefully crafted statements of intention. That they often appear in four-character form is a hangover from earlier days when illiteracy was a major problem in China so short, simple slogans were necessary to communicate policy decisions to the population.
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Snake and Shanghai market
The Year of the Snake is a year when China sheds the old skin model of economic growth to reveal a new approach built around a digital economy. This brings with it new types of employment opportunities that will more effectively use the higher education levels found in the modern workforce.
The monthly chart of the Shanghai Index shows the market trading in a broad sideways trading band. This year’s future lies in the breakout above the upper edge of the trading band, which provides a target near 4,600.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a former national board member of the Australia-China Business Council
