Growth, inflation and labour market all easing
China remains on track to achieve its growth target for the year with domestic demand holding up in October, while exports picked up from the disappointing outcome in September. Industrial production was slightly better than expectations for the month.
China remains on track to achieve its growth target for the year with domestic demand holding up in October, while exports picked up from the disappointing outcome in September. Industrial production was slightly better than expectations for the month, while retail sales and investment were slightly below. Regulatory distortions to trade data are making it difficult to gauge the health of export manufacturers, but solid industrial activity and a pick up in demand from major advanced economies is a positive indication. Demand from these economies is expected to gradually improve.
The acceleration in activity since mid-year is expected to lose some steam going into next year as efforts to rebalance and restructure the economy gain more traction – we should get more guidance on how these reforms will unfold following the 3rd Plenary Session of the 18th CPC Central Committee, which is currently underway. We have maintained our forecast for 2013 at 7.6%, with growth decelerating to 7¼% next year. Despite higher headline inflation, temporary price pressures suggest little incentive for the central bank to materially change its stance on monetary policy. We expect the central bank to continue ensuring adequate liquidity for domestic banks while maintaining tighter overall monetary conditions to discourage speculative investment and rapid credit growth. Bouts of tight liquidity could prompt a cut to reserve requirements, but the central bank has been reluctant to do this so far, and indications that foreign capital is returning will likely add to their reluctance. Therefore, reserve requirements and benchmark interest rates are expected to remain stable.
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