October 20, 2017

China’s economy at a glance: 19 October 2017

China’s stable growth continued in Q3, but supported by another credit binge.


  • The 19th National Congress of the Communist Party of China commenced in Beijing this week, a meeting that will shape the country’s leadership for the next five years. As many as five of the seven member Politburo Standing Committee are set to retire, and their replacements may signal whether President Xi is likely to serve an additional five year term (beyond the current one ending in 2022) and whether the stalled reform agenda can be brought back on track.
  • The latest national accounts data showed that China’s economy expanded by 6.8% yoy in the third quarter, compared with 6.9% in Q2. As was the case with Q2, economic growth in Q3 was supported with a large scale increase in credit. Reflecting the strength of economic growth across the first three quarters, we have revised our forecast for 2017 to 6.8% (from 6.7% previously). Our forecasts for 2018 and 2019 are unchanged – at 6.5% and 6.25% respectively.
  • China’s industrial production grew by 6.6% yoy in September – accelerating from the comparatively weak 6.0% recorded in August. Crude steel production rose in year-on-year terms in September (up by 5.3%) but has declined from recent peaks – down to 71.8 million tonnes (from an all time high of 74.6 million tonnes in August).
  • Fixed asset investment grew at a faster rate in September – up by 5.7% yoy (compared with 4.9% in August) – albeit this was still the second lowest rate of growth in 2017. Given the acceleration in producer prices during September, this implies the second straight month of negative real investment – at around -1.4% yoy (compared with -1.6% previously). New construction starts have slowed in recent months – well off the peaks recorded in June. On a three month moving average basis, new residential starts rose by 4.7% yoy in September – the slowest rate of growth this year, and well off the double digit levels of the first half. Similarly, house sales have softened.
  • China’s trade surplus narrowed further in September – down to US$28.5 billion (compared with US$41.0 billion previously). Compared with the levels from August, there was a sharp increase in imports, while exports were marginally lower. Import volumes of key industrial commodities rose strongly – with iron ore import volumes rising to record levels, a surprise given the planned shutdown of steel capacity in a range of northern cities across November to March.
  • Retail sales growth was marginally stronger in September. In line with a slight softening in inflation trends, real retail sales growth was stronger – back up to 9.3% yoy (compared with 8.9% in August). Consumer confidence has continued to improve – albeit only modestly in August – up to 114.7 points (from 114.6 points in July) – the highest level in over two decades.
  • China’s monetary policy remained relatively stable across Q2 and Q3 – following modest tightening in Q1. Over this period, the 7 day Shibor
    traded in a range of just 184 basis points – broadly around 2.8%. The Shibor trended closer to 3.0% immediately ahead of the Golden Week holidays (at the start of October) but has subsequently trended lower.

For further details, please see the attached document: