Chinese growth shrugs off headwinds
The long-awaited China slowdown barely materialised this morning, with headline GDP growth dropping only slightly; to 6.8% in the third quarter from 6.9% in the first half of the year.
Nominal GDP growth remained robust at 11.2%, up slightly from 11.1% previously. Taken at face value, this would seem to imply greater space still exists for further policy tightening, doubling down on the more restrictive stance taken on credit this year.
A breakdown of the GDP data reveals an acceleration in the primary and tertiary industries supported growth as the secondary industry decelerated. That is, it looks like raw materials and services kept the show on the road as manufacturing slowed. We will have to wait for a full breakdown to see which elements of services accelerated, but there is a risk that growth remains supported by unsustainable engines.
“Old China” is facing capacity cuts and pollution curbs, at least in theory, and the property sector remains under the cosh of tighter credit and macroprudential policies (which aim to mitigate risk to the financial system as a whole).
Higher frequency data published alongside the GDP print today complete the picture for the quarter.
Puzzlingly, most measures of activity seem to have slowed by much more than GDP. Average year-on-year growth in fixed asset investment was 5.8%, compared to 8.3% in the second quarter. Exports grew 6.9% compared to 9%. Industrial production slowed to 6.3% on average from 6.9% previously, and retail sales also stumbled, growing 10.3% from 10.8% on average.
To us, this would seem to indicate a greater deceleration in GDP growth than the 0.1 percentage point drop we have seen.
The slowdown in China is taking longer to appear than we predicted. However, bloodied but unbowed, we continue to forecast further slowdowns in Chinese growth from here.
Credit tightening remains in place despite the recently announced required reserve ratio cut for 2018, and we believe the focus on pollution is genuine. President Xi’s opening speech at the 19th Communist party congress yesterday reinforced this view. Today’s GDP data gives him a strong platform for whatever agenda he propounds over the next week.
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