China’s GDP beats expectations, but the market falls

China’s GDP grew 3.9% y/y in the third quarter of 2022. This significantly beat expectations of 3.4% growth. However, markets across China plummeted. The Hang Seng fell more than 6% and both the Shanghai and Shenzhen indexes fell by more than 2%. Alibaba’s stock fell by more than 11%. Why?

Not all GDP news was good news

While the GDP data was strong as a headline. Components were mixed. Industrial product was 6.3% (vs consensus of 4.5%). However, retail sales only grew 2.5% (vs consensus of 3.3%). The service sector also only grew 2.3%. Real estate investment has also continued to decline, falling 8% y/y.

Parts of the positive news also appear to be state-driven. For example, infrastructure – a highlight – great 8.6% y/y. Similarly, state-based industrial production was a significant component of the industrial production increase, broadly. This suggests a greater reliance on government support to offset weakening consumer support.

The mixed GDP data, and underwhelming services growth, would be one factor weighing on parts of the market.

Concerns about the leadership team

China contemporaneously unveiled its new leadership team. Market participants had hoped that the politburo would contain more pro-market members and be pro-reform. However, the politburo appears more orthodox and ideological.

The continued presence of political theorists appears to weigh on markets. This is because such members would seemingly prefer greater state control over enterprise and for the party to have more involvement in how individual businesses are run. This would especially impact companies that had already come under scrutiny. This likely explains Alibaba’s significant decline.