Chinese Q2 GDP and Communist Party Third Plenum
The week of July 15 will start with a major focus on China. Given the size of the country and the magnitude of what’s going on, it will likely have global repercussions. Traders are used to the happenings in China affecting commodity currencies, but with rumors of an economic slowdown in the US, the data could have a broader effect.
The Chinese Communist Party (CCP) will hold its Third Plenary Session starting on Monday and running for three days. This is a key event, as it typically includes the proclamation of important economic and policy changes. There is additional anticipation around it as it was postponed from autumn of last year. And just as things are kicking off in Beijing, the National Bureau of Statistics will release the Q2 GDP figures, the first of the major countries to do so.
Why the Plenum Matters
Within the complex administrative system of China, ruled by its Communist party, this particular gathering stands out for its potential to influence the economy and the markets. The Central Committee of the Communist Party is the body that officially announces the most important policy decisions of the party. In practice, the decisions are made by a much smaller group of elites, and chief among them is President Xi Jinping. But the meeting is when these ideas are brought up publicly and adopted as new official policies.
The Central Committee meets seven times in its five-year tenure. The first two meetings usually revolve around personnel decisions, and the third is when typically major policy decisions are announced. The last Third Plenum was in 2013, when Xi had recently assumed leadership of the country. That’s when the rules on the one child policy were relaxed, household registry was changed and national security was given new emphasis.
What Can We Expect Now
Formally, the Committee is expected to review a “resolution on comprehensively deepening reform and advancing Chinese modernization”, according to the official government media outlet. What does that mean in plain English? Well, the markets have keenly noted a series of areas of difficulty for the Chinese economy which could be addressed. Chief among them is the hope (though not expectation) that something more will be done to support the beleaguered housing industry.
Other changes that might be announced include the potential to reform the tax policy, changing the division of where tax is spent between the central and local governments. Chinese regions have been facing increasing debt risk, and falling income from lack of home sales. Other areas include the potential to renovate and reinvigorate spending and support for the tech sector, which has been under pressure from foreign sanctions.
What Else Can Happen?
While investors are reviewing what might come out of the Third Plenum, they can sink their teeth into the latest economic data. Chinese Q2 GDP is expected to show solid, albeit slowing growth to an annualized rate of 5.0%, from 5.3% in the first quarter. That would keep the country on track to meet its target for the year.
But investors might be a little nervous if the world’s second largest economy shows signs of slowing down. Sanctions have taken their toll, weighing not just on commodity producers like Australia, but tech exporters like Germany.