Overview

• China’s headline economic growth slowed a little in Q3, up by 4.9% yoy in Q3 (from 6.3% yoy in Q2) – albeit growth in Q2 was inflated by base effects related to strict COVID-19 lockdowns that hit activity during the second quarter of 2022. Despite inconsistency with headline year-on-year data, quarterly growth rates point to an acceleration in activity, driven by growth in services. While the property sector and weak external demand remain headwinds to growth, we have reversed the downward revision we made to our forecast last month – lifting 2023 growth back to 5.2% (from 5.0% previously) – while our forecasts for 2024 and 2025 are unchanged. This better balances near-term upside and downside risk to China’s growth.
• Growth in China’s industrial production was unchanged in September – increasing by 4.5% yoy. This growth rate remains relatively subdued when compared with pre-pandemic trends.
• In real terms, China’s fixed asset investment growth was also unchanged in September – increasing by 3.0% yoy. There continues to be a wide disparity in nominal investment between state-owned enterprises (SOEs) and private sector firms. SOE investment increased by 6.0% yoy in September (from 6.1% yoy in August), while private investment recorded no growth.
• China’s trade surplus increased in September, totalling US$77.7 billion (up from US$68.2 billion previously). This pickup reflected a stronger month-on-month increase in exports than imports (albeit both fell significantly year-on-year). Exports to China’s major trading partners fell more rapidly than the overall decline in September – down by 9.9% yoy – as China has continued to expand exports to other destinations, most notably Russia.
• Real retail sales growth ticked higher in September – increasing by 5.5% yoy (compared with 4.5% yoy in August). Extreme volatility in these data – related to the impact of China’s zero-COVID measures in prior years – makes interpreting year-on-year growth rates in real sales difficult. Neither a comparison of growth through the pandemic, nor the NBS’s seasonally adjusted monthly growth data, provide a clear indication of a rebound in consumption.
• The People’s Bank of China (PBoC) rolled over expiring medium term lending facility loans in September – maintaining liquidity in financial markets – with the rate on these loans unchanged. There remains no shortage of funds available for lending. Rather, the weakness in the housing market and among private firms have continued to constrain loan demand.

For further details, please see China’s economy at a glance (October 2023)