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Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Nothing about today's China GDP figures would convince anyone to change their mind. Bears would argue that the December quarter's 6.8 percent growth, the slowest in more than six years, shows the nation is edging toward a hard landing. Bulls would cite the same number to say that the very manageable slippage from the previous three months' 6.9 percent is sign of stability -- proof authorities are in control.

Bulking Up, But Less Quickly
China's economy is growing at a slower pace in nominal terms
Source: Bloomberg/National Bureau of Statistics, China

While it's impossible to decide the ``whither China'' debate based on a backward-looking expansion report, there's something in the data that's both puzzling and worrisome.

Call it the deflation effect.

To see what it is and why it matters, contrast the official statistics for nominal GDP growth against corporate revenue growth, gleaned from earnings statements of almost 1,900 publicly traded Chinese companies. Both before the 2008-09 financial crisis and after it, when China's nominal GDP expanded by 18 percent or more, the country's non-financial corporate sector was able to garner revenue growth that matched or exceeded the pace of value addition in the overall economy. But now that the output growth rate has crashed to less than half of that, the same corporate sector has become a driver of under-performance.

Tuesday's data showed nominal output growing 6.6 percent in 2015, slower than the 6.9 percent increase in real, or inflation-adjusted, GDP. Companies are yet to report their sales and earnings for the final quarter, but on a trailing 12-month basis, non-financial revenue growth is now shrinking by about 3.6 percent. That shortfall of almost 10 percentage points from nominal GDP growth marks a second year that the corporate sector's sales effort has failed to match or beat the broader economy:   

Chinese Companies' Missing Beat
Non-financial corporate sector is failing to match pace of economic expansion
Source: Bloomberg

China's producer price index has been signaling the onset of deflation for roughly four years now. But two years of sustained revenue under-performance, where an entire corporate sector finds the pace of nominal GDP expansion to be an unbeatable hurdle, is not a healthy sign. In the U.S., you'd only expect to see something similar in or around a recession:

Bang On Target
U.S. companies beat GDP growth in most years
Source: Federal Reserve Bank of St. Louis

Companies that can't grow faster than the economy are always problematic. But if, like in China, they also happen to be servicing a whole lot of debt, then investors have an even stronger reason to mind the gap.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net