How long will it take before China GDP falls below 5 percent?

Pedestrians walk past a sign depicting Colonel Sanders at a KFC restaurant in Shanghai, China. Photo: Bloomberg

If there is any bubble in China, it’s a negativity bubble.

That’s not meant to distract the obvious: that the mainland China equity market was blown out of whack this spring and the tech-laden ChiNext was priced outrageously. It doesn’t mean China doesn’t have an oversupply problem or built too many cities and bridges to nowhere. We know it. We hear it on CNBC. We read it weekly in the financial press op-eds from London to New York.

Last month in Moscow, CNN host Richard Quest asked people at the Russia Calling investor conference what they think China’s real GDP figure was like. A few actually said under 2%. Given its roughly 2% inflation rate, that would be a real economic output figure of around zero.

China grew 6.9% in the third quarter on an annualized basis. This week, Xi Jinping put a floor on growth, saying the economy needed 6.5% if it is to make do on promises outlined in its new five-year plan. The last time China grew under 7% was in 2009, during the U.S.-inspired Great Recession. It hasn’t grown double digits since around 2010.

Like other Asian double-digit economies from the 70s and 80s, China will one day grow in the low single digits. Its GDP will fall below 5%. It’s not going to happen next year. It’s not going to happen in 2017.

That is, if history can be our guide.

Economic growth rates in China are more important for Beijing than American growth rates are for Washington. With the exception of election years, the only time Washington is worried about the economy is when there’s a slowdown during a presidential campaign. Economic output targets are a daily concern in China because the economy affects the stability of a society with over a billion people in it, most of them still quite poor and uneducated.

So when President Xi Jinping and Premier minister Li Keqiang both say China can keep a 6.5% rate over the next 5 years, investors should take note. When has Beijing missed that target? Is it a lie? What numbers, then, are we to believe?

Even 6% is possible when comparing to other Asian power house countries throughout history. Japan, Korea and Singapore all experienced a decade of high growth above 9%. It usually took around 8-10 years before they dropped consistently to the 5% level. No country went from 9.5% to 2% in just five years time.

Shanghai based fund managers tell me that even the most conservative guys in China today don’t believe the 2% story. Most even think a 5% GDP print is conservative.

It’ll come, though. Probably within the next five years.

China is still growing. Perhaps the break-neck pace of the past was due to the low-base effect — it had nothing. It build rail, roads, airports and entire cities from scratch. Much of it was overdone, to put it mildly.

But this is not an economy slipping into a recession. Companies hired around 10 million people this year. Some sectors will see contraction. Some firms may go bankrupt. But according to the latest PMI figures, China is slow, but steady. Consumer and tech producers are all doing better than the average manufacturer.

If there is a hard landing in China, it is more of a controlled descent. That’s better than a crash. Over time, investors will probably come to appreciate that fact and pop the negativity bubble hovering over the country.

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