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'China GDP points to steadier commodity demand'

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The Chinese economy has slowed more than had been hoped for by the rest of the world.  (Reuters) The Chinese economy has slowed more than had been hoped for by the rest of the world. (Reuters)
SummaryThe Chinese economy has slowed more than had been hoped for by the rest of the world.

It's probably not going to be too hard to find bearish analysis of China's economic growth data, but much of this will miss the point.

While the 7.4 percent expansion in gross domestic product in the third quarter from a year earlier was lowest since the first quarter of 2009, all this tells us is what we already knew.

The Chinese economy has slowed more than had been hoped for by the rest of the world and by more than the authorities would have wanted.

But it's also important to point out that a 7.4 percent GDP outcome is far from a collapse, and still not quite the proof of a hard landing that many fear.

It's also not an outcome that supports the doom and gloom that has crept into much of the commentary about commodity demand from the world's biggest buyer.

The easing in China's growth certainly justified some of the pullback in prices for iron ore, coal and some other commodities, but maybe not to the extent that happened.

For example the price action in spot iron ore, which declined 22 percent in the third quarter, would seem to suggest that the outlook now is worse than it was in the aftermath of the 2008 global financial crisis and recession.

While iron ore has recovered in recent weeks to trade around $115 a tonne, it's worth noting that the price since around the beginning of August has been hovering around three-year lows.

So, are things in China as bad now as they were in the aftermath of the 2008 crisis, and is the outlook for recovery worse?

Even though the September quarter GDP numbers are largely an exercise in understanding what is now history, they do provide some interesting perspectives.

GDP growth fell steeply in China from 10.8 percent in the second quarter of 2008 to 6.6 percent in the first quarter of 2009.

It then rebounded rapidly to 12.1 percent by the first quarter of 2010, after which the slide to the current level has been more gentle. It may be the case that GDP will slip further in the fourth quarter as it's likely the government's stimulus programme will take time to work through the economy.

Assuming the stimulus works, GDP growth should once again start rising by the first quarter of 2013 at the latest, but this time the rebound is likely to less pronounced

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