Does China’s Worst GDP Growth in Decades Pose a Risk to Instrument Companies?

The National Bureau of Statistics of China released its preliminary data on the second quarter of 2019. GDP growth was estimated at 6.2%, which marks the lowest quarterly growth for the country since 1992. China has been one of the best sources of growth for analytical instrumentation for decades, so the question arises: Is this a sign that Chinese spending on laboratory instruments and equipment is in jeopardy?

The short answer is no. The long answer is also no. Observers point to weakness in the Chinese export market as one of the drags on growth. No doubt the current trade war with the US is part of the equation here, but the Chinese market is increasingly reliant on domestic consumption. In part to compensate for the trade war, the Chinese government has acted to increase infrastructure spending and other internal investment. Thus, we can expect public investment to continue, and science and technology remains a focus of the government. Likewise, the private sector could be encouraged by lowered interest rates to invest more in R&D.

However, some financial experts note some weakness in the Chinese banking system. There is a possibility that increasing lending can produce greater strain on the system, putting not just China, but the global economy at risk. Other improbable sources of significant risk include the general social/cultural transformation of the country, whether it is unhappiness with poor air quality and economic inequality, or anger at the central government nibbling away at the promise of “One Country, Two Systems” in Hong Kong, which recently erupted into large protests over a proposed extradition law. But all these risks seem very remote at the moment.

Finally, one might (perhaps rightly) scoff at the very idea that this dip in China’s GDP growth is anything to worry about at all. First, 6.2% would be an enviable result anywhere in the developed world. Second, the link between GDP growth in an entire economy and demand for laboratory instrumentation is not very strong. SDi’s estimate of Q1 growth in Chinese demand for the technologies included in our quarterly Global Datastream was a blistering 12.9%. The data for Q2 are not yet in, but likely will fall short of that. Total growth for the year is estimated in the high single digits, as presented in the 2019 SDi Global Assessment Report, which covers more technologies than the datastream.