by Third-quarter data leads us to revise up our growth forecast for this year to 6.7%, but forecast for 2017 remains unchanged at 6.2%. The latest data releases confirm our view that the Chinese economy is stabilising for the moment and that growth is on track to meet the government’s target of 6.5%-7% in 2016. The strong Q3 GDP reading leads us to revise our full-year GDP forecast for China to 6.7% from our previous forecast of 6.5%.Recent Chinese data releases prompt several observations.First, growth in recent months has received a significant boost from improvements in fixed-asset investment in recent months. Investment in the manufacturing and property sectors has rebounded from recent lows, likely helped by the strong housing market in China. Infrastructure investment, being supported by stronger government spending, has also rebounded. Second, consumers have remained resilient. The growth in retail sales continued to pick up in September, rising 10.7% year-over-year, after10.6% in August.Third, net exports will likely continue to drag on economic growth in the near term. China’s exports have been suffering both from sluggish global demand and a loss in competitiveness, possibly due to rising labour costs and currency over-valuation. Fourth, China continues to transition towards a more consumption- and service-driven economy.
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Dong Chen considers the following as important: China economic transition, China Fixed Asset Investment, China GDP growth, China housing, Macroview
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Third-quarter data leads us to revise up our growth forecast for this year to 6.7%, but forecast for 2017 remains unchanged at 6.2%.
The latest data releases confirm our view that the Chinese economy is stabilising for the moment and that growth is on track to meet the government’s target of 6.5%-7% in 2016. The strong Q3 GDP reading leads us to revise our full-year GDP forecast for China to 6.7% from our previous forecast of 6.5%.
Recent Chinese data releases prompt several observations.
First, growth in recent months has received a significant boost from improvements in fixed-asset investment in recent months. Investment in the manufacturing and property sectors has rebounded from recent lows, likely helped by the strong housing market in China. Infrastructure investment, being supported by stronger government spending, has also rebounded. Second, consumers have remained resilient. The growth in retail sales continued to pick up in September, rising 10.7% year-over-year, after10.6% in August.
Third, net exports will likely continue to drag on economic growth in the near term. China’s exports have been suffering both from sluggish global demand and a loss in competitiveness, possibly due to rising labour costs and currency over-valuation. Fourth, China continues to transition towards a more consumption- and service-driven economy. The latest data show that the tertiary sector’s (mainly services) share of GDP continues to rise. Fifth, rising inflation, especially for industrial goods, boosted nominal GDP growth in Q3, helping alleviate concerns about China’s mounting corporate debts, at least for the near term. China’s producer price index (PPI) has been improving since early 2016 and its y-o-y change turned positive for the first time in September after more than four years. We expect Chinese inflation to continue to rise moderately in the short to medium term, but still stay comfortably below the government’s target.
We do not think the recent improvement in growth momentum will be sustained. Surging house prices in China have caused serious concerns among policy makers, and the authorities in some second-tier cities have re-introduced measures to curb the growing risk of a housing bubble. As a consequence, we are keeping our forecast of 6.2% growth in China in 2017.