April 2015

China Responds to Slowing GDP Growth

China, the world’s second largest economy, has seen its growth steadily decline since it hit a peak in 2007 at 14.2% (World Bank, 2015). Last month’s GDP report didn’t fare overly well, and the scant 6.28% growth in GDP was China’s lowest since 1990. Compare this to a target set recently by Premier Li Keqiang of 7% for 2015 as a whole, and it’s clear the slowdown has been markedly quicker than many expected (Bloomberg, 2015). Cue the horror movie music.

On the surface this massive decrease of over 50% appears catastrophic, but is it really? We don’t believe so – at least not yet. A 14% national growth rate is astounding, and by developed market standards so is a 7% rate. In times of strong economic growth developed markets are likely be somewhere around a 3.5% GDP growth rate, well below that of China’s current rate (Bloomberg, 2015). But China isn’t a developed market. The point nonetheless is that the growth rate in China is still respectable despite its precipitous fall. In addition, the country has been shifting from a quantity-driven export market to a quality-driven internal consumption model. As China continues its shift from an emerging market economy into the largest developed market in the world, growth will inevitably slow. With that said, a slow and steady decline is preferred.

So we know that China’s growth is slowing and we know that slowing growth is not optimal. We also know that China is working feverishly (and will continue to work) to keep this rate from rapidly deteriorating. The country’s central bank chief told reporters that policy makers have the ability to respond by changing interest rates and implementing quantitative measures. Recently the Peoples Bank of China (PBOC) has lowered the down payment for a second mortgage to 40% from 60% in hopes of reviving the ailing property market. In addition, many expect the PBOC will cut benchmark lending rates and required reserve ratios for banks on top of cuts made over the past number of months; the effects of which are still to be seen (Bloomberg, 2015).

Let us conclude. Growth is slowing and is expected to continue to slow. The Chinese government has acknowledged the slowdown with accommodative monetary policy. The PBOC has pledged support should the economy continue to deteriorate. All signs point to another put option provided by central banks. Let us monitor the situation while staying invested for now.


Pi, Xiaoqing. (March 29, 2015). China’s Zhou Says PBOC Has Room to Act on Growth Slowdown. Retrieved from Bloomberg at

World Bank. (March 31, 2015). Data: GDP growth (annual %). Retrieved from the World Bank at

This newsletter was prepared solely by Bruce Morrison who is a registered representative of HollisWealth™ (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The view and opinions, including any recommendations, expressed in newsletter are those of Bruce Morrison only and not those of HollisWealth. TM Trademark of The Bank of Nova Scotia, used under license. Morrison & Partners Wealth Strategies is a personal trade name of Bruce Morrison.