The publication of the first estimation of the 3rd quarter Chinese growth rate (6.5%) confirms that the financial markets worries as these of commentators were excessive. Of course, the published numbers are slightly inferior to expectations (6.6%) but this gap is trivial and the referred disappointment is absurd. Regarding the three first 2018 quarters, China has reached a 6.7% rhythm, above the government objectives and, anyway, an impressive one, if we take into account the size of the Chinese economy and if we compare it to other major economies. The Middle empire stays as one of the motive forces of world growth if not the main one. To compare growth rates on long periods doesn’t make sense, especially when that growth is, by itself, high. To pretend that this number is the lowest for ten years pretends to ignore that the size of the Chinese economy has doubled during that period. Financial markets did not make the mistake and the announcement of these economic results provoked a 3% rebound of the Shanghai stock exchange. That doesn’t offset the 25% fall observed during the last six months.

This growth is occurring without excessive inflation (2%) and allows keeping unemployment in urbanized areas around 5%. Exports are still progressing (+6.5% since the beginning of the year) but imports are rising rapidly (+14%) and the trade surplus has been strongly reduced (150 billion dollars, -28%). It is not sure that it will be enough to satisfy Donald Trump because surplus contraction is mainly due to the rebound of oil prices. China is the world biggest oil importer. The point is that the U.S. cannot stand the country growing economic and financial influence, especially through the Belt and Road Initiative (BRI), and the American downturn which is resulting. China has remained during the first half of the year, according to UNCTAD statistics, the first destination of Foreign Direct Investments, with 70 billion dollars, followed by U.K. with 66 billion and by the U.S. with only 46 billion.

Industrial production and investment have carried on growing since the beginning of the year (6.4% and 5.4%). What is creating worry outside of the country is that 2018 Chinese industry is not anymore the 1998 one. It less and less depends from the delocalization strategy of Western and Japanese companies and it is upgrading itself to satisfy, as a priority, Chinese consumers. The only gloomy point is the very significant stoppage occurred during the third quarter about car registrations. For the first time in 26 years, in 2018, it is very likely that sales will have stagnated and even slightly fell, but the sales level will stay near 24 million. The car industry is all the same increasing its presence in neighboring countries through the BRI with exports which be over 500 000 vehicles this year.

This industrial upgrading concerns products and also production techniques with an increased use of robots and software. It profits to the Guangdong province which has as an ambition to become the Chinese California where all these new technologies are developed and put in application in the hundreds of plants located in Shenzhen or in Dongguan. Historically, this region has always been at the center of the country commercial activity thanks to its harbors and to the proximity of Hong Kong. Canton Fair, which is opening in the coming days, attracts thousands of companies. The Zuhai Forum which has just been held in this city located near Macao, has permitted to evaluate Chinese companies progresses in the countries involved in the BRI.

Domestic demand has staid very dynamic since the beginning of the year with a 9.3% progression of retail sales. It is sustained by household equipment in appliances and by tourism which compensates the stabilization of car sales. The growing urbanization generates a breakthrough with traditional consumption models. This is especially the case with energy. The rise of natural gas consumption is not only the result of the substitution with coal in thermal power plants to fight against urban pollution and CO2 emissions. In the new buildings, inhabitants are connected to natural gas for their heating and cooking needs instead of coal or wood as in the past. The development of feeding networks has been spectacular during these last ten years.

The new profile of China growth cannot by itself conceal tensions which are affecting the country and which are put forward by observers. The prospect of an intense and lasting trade war with the U.S., even if it is a game where everybody will be a loser, and as the first one Washington, will inevitably weight on industrial establishments in China by Western companies which will choose other delocalization sites and on the Chinese industry itself which will see some of its markets closing. That will not be enough to provoke a recession or a crisis in the country, but that will affect the future growth in some sensitive sectors like the steel industry or electronic components.

The second threat is created by the indebtedness, which is considered as excessive, of companies and local authorities. Government has already imposed a curb to foreign investments, financed through debt, as these made by HNA or Anbang groups which have had already to sale assets to reduce their debt. But worries are growing about the financial situation of local authorities which, in order to bypass budget and prudential rules imposed by Beijing, have used off-balance sheet techniques through special purpose vehicles. Standard & Poors has just evaluated its amount to 6000 billion dollars, i.e. more than 50% of China GDP. The central government is now putting pressure on local authorities to force them to return to rigorous financial practices and to start to deleverage themselves. But that will necessarily have an impact on investment expenditures and so, on growth.

Despite these threats which are weighting on the Chinese economy, two factors are inciting not to fall into the excessive pessimism which inspires commentators and which have moved Chinese financial markets. The global financial situation of the country is staying strong. Balance of payments surplus have allowed the Central Bank to accumulate currency reserves for an amount above 3000 billion dollars, sheltering China from an external crisis. That one manages its currency, in a context of extreme volatility on all the markets, with caution and has not started, as some were worrying about, a competitive devaluation strategy. The American Treasury Department has even contradicted its president in maintaining that China was not manipulating its currency. The traditional banking system has a non-performing loan ratio inferior to 2% and it is, also, protected against crisis as these that happened during the sub-prime crisis in the United States and in several European countries.

China is facing a triple challenge: to keep a high growth rate without puting in danger its financial stability and, in the same time to increase its economic and political influence in the world, in a volatile international context and facing major technological mutations. The observation of the followed way during the last forty years shows that it has all the chances to succeed in coping with these challenges.