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China’s economy changes shape

By Michael Knox - posted Friday, 1 November 2019

This month, China’s National Bureau of Statistics released China’s 3Q GDP. This came in at a lower growth rate than we had forecast. We had been forecasting year-on-year growth of 6.25%. In fact, it came in at 6%. That means our forecast for the coming quarters, all the way out to the end of 2021, now falls from a number with 6 in front of it to a number with 5 in front of it.

Table 1: China GDP Q3 2019


For 4QCY19, we think growth eases to 5.9%, then reduces to 5.8% in 1QCY20. By the end of 2020, we expect a lower year-on-year growth rate of 5.6%. That’s likely the same growth rate that will continue into 2021. In spite of growth being slightly lower than we anticipated, China’s GDP is still an enormously large number. That number in RMB is 98.7 trillion. Turn that into USD at the current exchange rate and that’s 13.97 trillion USD. The US economy is around about 21 trillion dollars. Therefore, China’s economy is 2/3 the size of the US in exchange rate terms.

On previous occasions I’ve spoken about how the structure of the Chinese Economy is changing. I’ve said that even though we think of China as a manufacturing economy, that is no longer the case. We can see this by looking at the size of each sector and where the growth is coming from in the Chinese economy, refer to Table 1. These days, the fastest growing sector is Services which grew for the nine months to September at 7.2%. Consequently, it’s growing faster than the average of the Chinese economy of 6%. What’s important about Services is that it doesn’t only have the highest growth rate, but it is also the largest sector overall. Services now represents 52.3% of the Chinese economy. We call that a service economy.

When we get to manufacturing (which is what many thought is all that China did), there’s 13% less of the economy in Manufacturing than there is in Services. The Manufacturing sector is 39.6% of the Chinese economy and its growing at 5.2% year on year. Manufacturing is growing at below average whereas services are growing at above average. It is worth noting that Agriculture is 8% of the Chinese economy, still much larger than Agriculture in the Australian economy. Chinese Agriculture has a very low growth rate of 2.7%.

Table 2: China Rapid Growth Sectors of GDP Q3 2019

The only reason the Chinese GDP is growing as high as 6% is because of the stand out 7.2% growth in services.


The rapid growth sectors of the Chinese economy are shown in Table 2. We can see that the fast-growing sub-sectors are Information Technology and Telecommunications. IT and Telecommunications grew at a blistering 18% for the year to the end of September.

Let’s move away from Information Technology and go towards Business Services; renting and leasing Business Services. Now that’s growing at 8.4% and it’s the second fastest growing area of the economy. Third is very interesting: it’s Transport, Storage and Postage

which is growing at 7.5%. The growth in Transport, Storage and Postage is associated with online retailing.

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This article was first published by Morgans.


The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual’s relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so. Those acting upon such information without advice do so entirely at their own risk.

This report was prepared as private communication to clients of Morgans and is not intended for public circulation, publication or for use by any third party. The contents of this report may not be reproduced in whole or in part without the prior written consent of Morgans. While this report is based on information from sources which Morgans believes are reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect Morgans judgement at this date and are subject to change. Morgans is under no obligation to provide revised assessments in the event of changed circumstances. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

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About the Author

Michael Knox is Chief Economist and Director of Strategy at Morgans.

Other articles by this Author

All articles by Michael Knox

Creative Commons LicenseThis work is licensed under a Creative Commons License.

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