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China government may tolerate lower growth

Summary:
The authorities are growing more tolerant of lower headline growth, which is already showing early signs of declining.The latest Chinese economic data for October indicate the moderate deceleration in growth already seen in Q3 is extending into Q4. Both exports and domestic demand have slowed, particularly in terms of fixed-asset investment. National fiscal spending has shown signs of slowing, and central government has cut off support for some regional infrastructure projects on concerns of excessive local fiscal burdens. This may suggest that the idea of quality growth over quantity, a principle that President Xi emphasised during the 19th Party Congress, is already being applied.On the external front, the decline in export growth was mainly caused by a slowdown in exports to the US. We

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The authorities are growing more tolerant of lower headline growth, which is already showing early signs of declining.

China government may tolerate lower growth

The latest Chinese economic data for October indicate the moderate deceleration in growth already seen in Q3 is extending into Q4. Both exports and domestic demand have slowed, particularly in terms of fixed-asset investment. National fiscal spending has shown signs of slowing, and central government has cut off support for some regional infrastructure projects on concerns of excessive local fiscal burdens. This may suggest that the idea of quality growth over quantity, a principle that President Xi emphasised during the 19th Party Congress, is already being applied.

On the external front, the decline in export growth was mainly caused by a slowdown in exports to the US. We expect solid global demand to continue to provide support to the Chinese export sector going forward, but the growth rate may moderate further, as recent currency strengthening poses headwinds.

Although the upgrade in consumption upgrade by the Chinese middle class remains a major theme, Consumption growth declined moderately in October, with online sales continuing to outperform by a big margin.

All in all, while the Chinese government has traditionally maintained a “stop-and-go” approach to managing growth, we suspect this time could be a bit different. The recent data releases do not change our full-year GDP forecast of 6.8% for 2017 and 6.3% for 2018. However, there are signs showing the government’s tolerance for lower growth may be increasing after the Party Congress.

About Dong Chen
Dong Chen
Dong Chen is senior Asia economist, Pictet Wealth Management. - Twelve years of working experience in macroeconomic research - Extensive knowledge about asset allocation and multi-asset class portfolios - Rich client-facing experiences with high-net-worth clients across Asia - Rigorous training in economics and comprehensive knowledge about Asian economies and business - Strong analytical skills and solid background in statistical/econometric analysis - Strong communication / presentation skills - Native Mandarin Chinese speaker and fluent in English Do not hesitate to contact Pictet for an investment proposal. Please contact Zurich Office, the Geneva Office or one of 26 other offices world-wide.

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