China’s economy at a glance
China’s service sector has been the main contributor to economic growth in recent times – particularly as trends in the industrial sector continue to weaken. In Q3, the services industry (led by finance) maintained fairly stable growth.
China’s ‘old economy’ – manufacturing & real estate – continue to slow, but still signs of services growth
- China’s service sector has been the main contributor to economic growth in recent times – particularly as trends in the industrial sector continue to weaken. In Q3, the secondary industries – manufacturing and construction – provided the lowest contribution to GDP since the GFC – while services (led by finance) maintained fairly stable growth.
- The weakness in the ‘old economy’ remains evident – industrial production slowed further in October, while investment continued to trend lower (albeit recording marginally stronger growth than in September) – led by contractions in the real estate sector (where new construction activity remains weak).
- Industrial weakness is also evident in trade data, with import values falling in October – driving the trade surplus to record levels. Falling commodity prices remain a key driver of this trend.
- In stark contrast to the weakening in the industrial sector, China’s real retail sales edged higher to 11% yoy – a signal to the stronger performance in services. Consumer confidence also improved in the most recent reading in September. Despite the slowing economy and the impact of the mid-year equity market crash, confidence has remained in positive territory since the end of 2013.
- As expected, the People’s Bank of China cut interest rates in late October, bringing the benchmark one year lending rate down to 4.35%. Given the comparatively high rate – when compared with policy rates in advanced economies – the PBoC has considerable scope for further monetary policy easing. We expect two further cuts in H1 2016 – to bring rates to 3.85% by mid year. Further cuts to the Required Reserve Ratio will also be likely to ensure adequate liquidity remains in financial markets.
For more details, please see attached document