China’s Economy at a Glance: October 2016

China’s economy continued to track sideways – but weaker real estate could cool conditions in Q4

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Key points:

  • China’s economy grew by 6.7% yoy in Q3 – the same level recorded in both the March and June quarters. This level was in line with market expectations, and remains within Beijing’s target range of 6.5% to 7.0%. Booming property sales helped underpinned this growth, and government efforts to cool property speculation may have a negative impact on Q4 GDP growth. Our forecasts are unchanged, at 6.6% in 2016 and 6.5% in 2017 – with risks weighted to the downside next year.
  • House prices continue to grow strongly and sales have remained robust, however weaker real estate investment has impacted construction. New construction starts fell in September – down 3.7% yoy on a three month moving average basis, and this trend may be further exacerbated by tighter regulations around house purchases and mortgage lending.
  • Mortgage lending has surged this year, with mortgages accounting for around 36% of total bank lending over the first nine months of the year – far above the longer term trend. The People’s Bank of China (PBoC) has instructed banks to rein in mortgage credit and better manage risk – which may impact credit growth in Q4.
  • Growth in China’s industrial production slowed slightly in September, down to 6.1% yoy (compared with 6.3% in August), but still in line with recent trends.
  • A slight month-on-month fall in China’s exports and an upturn in imports saw the country’s trade surplus narrow somewhat in September – down to US$42.0 billion (from US$52.0 billion previously).
  • Retail sales growth edged slightly higher in September, with growth at 10.7% yoy (up from 10.6% in August). Retail price inflation has remained subdued in recent months – meaning our estimate for real retail sales growth has remained above 10%, compared with a softer patch in early 2016.
  • Headline inflation picked up in September – with the Consumer Price Index increasing by 1.9% yoy (up from a 15-month low of 1.3% in August). Producer prices rose in September – having recorded fifty-four months of falls – up by 0.1% yoy.

For further details, please see the attached document: