Monday, October 21, 2013

China data as expected

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 fourth quarter.

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.