Shenzhen confirms 6.6% growth, blames nothing

After the provincial government leaked Shenzhen’s GDP headline number for the first three quarters yesterday, causing a rush of commentary by bloggers and real-estate analysts, the city government decided today to clarify the reasons why its economy slowed so sharply, to 6.6% from 7.4% in the first six months.

Understandably, the report was full of numbers that the Shenzhen Daily tried to portray in a positive light.

At the heart of the data was an unmistakeable weakness: a sharp slowdown in industrial output and input, as we had expected in our report published yesterday.

Again, understandably, the Shenzhen Daily chose to look on the bright side, pointing out that the growth rate of fixed-asset investment was “stable” at 17.9%. Yet this was despite private investment plunging to a low not seen in nearly a decade, up 0.3% YoY, which means the July-September period must have seen private investment go deep into the red.

The structure of fixed-asset investment, in fact, moved heavily toward the government’s side thanks to infrastructure projects, which saw a 43.8% YoY increase. Investment in real estate development projects increased by 11.9%, but this, too is down from more than 26% in the first half of the year.

One bright spot is that foreign investment jumped by 87.8%, albeit from a smaller base than domestic investment (i.e., RMB 331 billion vs RMB 2.1 trillion).

Not missing a stride, the local news outlet said retail sales were “also increasing”, reaching RMB 477.839 billion, up 6.8% YoY. Yet it failed to note that this was a slip from the 7.7% recorded in the first six months. 

To be fair, though, again, there were bright spots in this data: while daily necessities grew just 2.9%, accommodation and catering sales were up 11.1% to RMB 58.557 billion; household appliances and audio-visual equipment were up 13.6%, and communications equipment up 10.9%. Online retail sales, moreover, were up a massive 42.1%. 

It is also worth noting that the report said: “It is worth noting that high technology has become a new engine for industrial growth.” This is news to no one who has heard of Shenzhen, yet what was newsworthy was that in the first three quarters, the added value of industrial enterprises above designated size rose by just 5.3% – a sharp drop from the 7.4% recorded in the first six months of the year. 

Of course, the data supports this masterful statement of the obvious. It wasn’t the high-tech sector that dragged the overall GDP number down so hard; it was the traditional manufacturing sector. Advanced manufacturing and high-tech manufacturing rose by 7.2% and 8.1%, respectively, led by computer, communications and other electronic equipment manufacturing (+8.3%). Pharmaceuticals were even better, rising by 8.9%.

But electrical machinery and equipment manufacturing rose by only 4.7%, special equipment manufacturing by 6.0%, and the energy-related industries stayed barely in the black, up by just 0.6%. The general equipment manufacturing industry was up just 1.8%.

Further “optimization” was found in the contribution of the services sector, which rose 7.4% to RMB 1.133 trillion. This compares to manufacturing’s RMB 733.804 billion, which clearly struggled in Q3, resulting in just 5.5% growth for the first three quarters, well down on the first half’s 7.3% growth rate.

Driving this growth was what would have been expected from Shenzhen: Internet services up 12.7%, and software and IT services up 22.7%.

Trade data was played with a straight bat: “According to Customs statistics, the total import and export volume of the city in the first three quarters was 1,214.092 billion yuan, down 1.8%.” This was in line with the year to date up to the end of August. But exports remained weak, at RMB 1,195 trillion, up just 4.8%, while imports, at RMB 918.653 billion, were down 9.3%.

It is understandable why no one at the municipal government might see the need to panic. The city’s financial situation is solid. As of the end of September, the balance of domestic and foreign currency deposits of financial institutions (including foreign capital) in the city was RMB 80.536 trillion, an increase of 11.3%; the balance of domestic and foreign currency loans of financial institutions (including foreign capital) was RMB 582.685 billion yuan, an increase of 11.9%.

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