Overview

• China’s latest national accounts data show its economy expanded by 3.9% yoy in Q3. By historical standards, this rate of growth is not particularly strong (particularly when compared with pre-pandemic rates) and this increase is somewhat inflated by base effects – given that Q3 2021 was negatively impacted by the Delta wave of COVID-19 and electricity shortages hitting a number of provinces.
• We have not fundamentally changed our views around China’s economy this month. The slightly stronger than expected growth in Q3 bumps up our forecast for 2022 to 3.4% (from 3.3% previously). Our forecasts for 2023 and 2024 are unchanged at 5.0% and 4.5% respectively, and weaker demand from advanced economies will require growth to be driven by the domestic economy.
• China’s industrial production growth accelerated in September – increasing by 6.3% yoy (from 4.2% yoy previously). The strength of this increase may be somewhat overstated – given that China’s industrial sector was negatively impacted by energy shortages in September 2021.
• Growth in China’s fixed asset investment edged higher in September – our estimates suggest that real investment rose by 4.6% yoy (from 3.1% yoy in August). State-owned enterprises recorded stronger growth than private firms, with manufacturing and infrastructure investment expanding rapidly, while real estate continued to contract.
• Real retail sales growth fell back into negative territory – contracting by 0.7% yoy (compared with a 2.2% yoy increase previously). The increase in real sales in August was in part related to the Delta wave of COVID-19 that led to weaker conditions in August 2021.
• In the first nine months of 2022, new credit issuance increased by 11.9% yoy to RMB 27.7 trillion. Bank loans continue to account for the largest share of total credit issuance and loans grew by 3.4% yoy. Non-bank lending rose by 30.5% yoy in the first nine months. The key driver over this period was government bond issuance – up by 33.8% yoy – however this rate of increase has slowed in recent months. In addition, shadow bank lending decreased by a smaller amount in this period.
• The PBoC maintained its Medium Term Lending Facility (MTF) rate unchanged in September. As we have noted in recent months, the effectiveness of monetary easing is questionable at present – with low interbank interest rates implying excess liquidity. Banks have a lot of funds available for lending, but there is little demand from the private sector – in part connected to the deterioration in the property sector, but also the weakness in household activity.

For further details, please see China’s economy at a glance (October 2022)