Something is going on in Shenzhen. The city has not yet released any reports on its economic performance in the first three quarters, yet provincial data show that the city’s GDP growth dropped sharply in Q3.
Private commentators have been reporting the provincial data today, many with alarmist analysis. This is rightly so: the 6.6% growth number recorded by Shenzhen for the first three quarters of this year follows 7.4% reported for the first six months. If accurate, that is an unprecedented quarterly slowdown.
Much of this commentary is speculative, focusing on the possible factors behind the sharp fall. The effect of the US-China trade war on Shenzhen’s tech-dependent industrial sector is the most obvious explanation, as imports have been falling for more than a year, although exports have been holding up reasonably well. However, it is hard to believe that external demand could have slowed enough to induce such a sharp cut in GDP growth. Data on Shenzhen’s foreign trade for July and August had indicated no surprising weakness. In fact, exports in August were up by double digits. Could September really have been all that bad?
There is obviously more at play here than trade. One analyst focused on rising land costs, which have been driving industries out of the city to cheaper locations. Two examples were cited: Huawei opening its R&D center in Dongguan back in April, and the Yongqin Toy Factory, which moved to Heyuan in October.
Those anecdotes are supported by official data from the first half of the year, which showed industrial fixed-asset investment had slowed to around 11% from more than 20% last year. The same was seen for real-estate investment, which fell from 26% in 2018 to around 11% in the first half of this year. Could these both have gone through the floor in Q3?
If so, it must have been a steep drop. As we reported in July, Shenzhen’s overall fixed-asset investment levels had remained high this year, as the government launched some Keynesian-style infrastructure projects. For fixed-asset investment to have dragged down GDP so sharply in Q3, there must have been a cliff-like fall in investment by industrial enterprises, AND a sharp fall in the real-estate sector’s investment levels.
Although this seems highly unlikely, it is possible, of course. As we reported previously, industrial profits at the listed companies may be growing strongly, but the corporate sector as a whole was in the red in the first half of the year. And Shenzhen’s real-estate sector has been treading water for two years under cooling measures imposed by the government.
Having said all that, however, the answer may be simpler than appears evident.
As we have previously written, the provincial and city governments have been somewhat restrained in their economic reporting in recent months by a change in Beijing relating to collection and dissemination of local economic data. There may simply be some recalculation happening that has resulted in a sharper change in Shenzhen’s reported numbers than those for the other GBA cities. Guangzhou, by contrast, reported very strong numbers last week, while Dongguan reported surging growth today. Shenzhen’s delay in reporting its own numbers may be as a result of some further “clarification” work going on behind the scenes.
The official explanation will be eagerly awaited.