China has announced that its GDP for 2015 came in at 6.8%. The datapoint was slightly down on where it was at the end of Q3, but was on or slightly above most commentators’ expectations. For the first time, the consumption sector of GDP now contributes slightly over half of all the growth.
Was yesterday’s GDP number a fabrication, designed to give the domestic market a positive message? Possibly, but whether that was the intention or not, it will give the average Chinese citizen some level of comfort that things aren’t as mad as they seem. Trouble is, corporations and businesses will not see it that way, and will not use this number as the basis for making any decisions on investment or spending.
The fact that domestic consumption is now the major contributor to GDP growth is not great news for the aluminium sector. This is because part of the reason why consumption is now over 50% is because investment and trade are both in decline. Increased consumption may sound like good news for aluminium in spaces such as packaging and consumer durables, but one has to remember that consumption as a category includes tourism, health, education, finance and banking and many other service industries. Some of these may lead to increased use of aluminium, for instance in building new schools and hospitals, dispensing medicines and so on, it is far from a direct connection.
There is a deeper problem for aluminium. Yesterday’s GDP number shows that he government has less reason to revert to the old model of throwing millions of stimulus dollars at the economy. If GDP is on track, what need is there for a stimulus measure (although I saw on TV last night that foreign commentators still talk in terms of the next stimulus package.) The Chinese government has made it a priority to rebalance the economy to a consumption-led model, and yesterday’s GDP will give the authorities comfort that they are on the right track.
AS we have said many times, demand is not the problem, whether it be in aluminium or in the economy in general. Serious over-capacity remains the big issue, and yesterday’s GDP should deliver a message to those that own that excess capacity not to expect anything different any time soon.
In fact, if the authorities believe their own propaganda, yesterday’s GDP number may even give them a sense that it is time to start to address the over-supply problems in aluminium and other sectors such as steel.