When Shenzhen announced a sharp drop in GDP growth after Q3 last year, we, like many others, were stumped as to why it had happened. The only logical explanation was a sudden drop in industrial output, which was attributable partly to the trade war damping demand for exports and also to industrial upgrading, which had seen a hollowing out of the city’s traditional economic structure.
What we missed, however, was a much simpler explanation: inflation. Nominal GDP had continued to grow strongly, but prices of goods and services rose more sharply than had been expected. This was a major reason for Shenzhen’s GDP growth falling from 7.4% at the end of Q2 to 6.6% at the end of Q3.
It is also a major reason, obviously, for the recovery in Q4, as Shenzhen ended the year back above 7%.
We don’t blame ourselves too much for this oversight, however. The city government had not flagged it for anyone, for obvious reason: Shenzhen, like the rest of the country, was engaged in quelling panic about a surge in pork prices after a major cull of the country’s hogs due to swine flu.
The crisis seems to be subsiding, judging by latest CPI data, which show that pork prices fell 4.4% in December over November. However, the city’s inflation rate is still high at 4.9%. That is clearly because of a nearly 17% rise in average food prices overall in 2019; non-food prices grew just 2%.
Read more from Shenzhen Daily (in Chinese)