China GDP came in bang on expectations at 7.8% for the year to September, up from 7.4% in the year to June. However, growth rates in the monthly activity indicators showed some loss of momentum reinforcing our expectation that growth will slow into the end of the year. That said we still expect annual average growth of 7.6% this year, just ahead of the official target of 7.5%.
Growth in Industrial production slowed to
10.4% yoy in September, down from 10.4% in August. Power, steel and cement production all slowed
although value-add in the automotive sector improved. This week’s flash HSBC PMI for October will
be an important indicator of how manufacturing was faring at the start of the
Growth in fixed asset investment (FAI) slowed
with growth coming in at 20.2% ytd in September, down from 20.3% in
August. Infrastructure investment remains
the strongest component of investment, although growth slowed over the
month. Manufacturing and residential
property investment both accelerated over the month. We expect infrastructure investment will
continue to drift lower into year-end, while some further modest upside can be
expected in residential investment. We
are cautious about the outlook for manufacturing investment given tighter
credit conditions and excess capacity in some areas. Overall we expect FAI growth will be sub-20%
by year end.
Retail sales growth was disappointing. While nominal sales growth slipped only
slightly from 13.4% yoy in August to 13.3% in September that was largely due to
higher inflation. Real retail sales
growth fell from 11.6% yoy in August to 11.2% in September. Disposable income growth accelerated over
the month which bodes well for consumption spending although as we head into
the end of the year annual growth will be impacted by the high base effect from
the end of last year.
Net exports made a negative contribution to
GDP growth in the September quarter. We
expect exports to strengthen next year as global growth moves up a notch.
Earlier in the month it was reported that
inflation for September came in at 3.1%.
That reinforces our expectation that scope for monetary stimulus remains
limited with the authorities remaining focussed on structural reform. In that regard the upcoming Third Plenary
session of the Communist Party is critical.