China – Mixed growth data

Growth picked up towards end of Q3

In quarter-on-quarter terms, GDP in Q3 grew 0.9%, in line with our forecast. Q2 growth was downwardly revised to 0.5% qoq from 0.7% previously. We see the improvement in qoq growth in Q3 in part as a statistical payback from a “low” base.

In year-on-year terms, GDP grew 4.6%, above our forecast of 4.4%. It came down a bit from 4.7% in Q2. The preliminary GDP breakdown suggested that industrial production growth held up at 4.6% yoy, albeit slowing from 5.6% in Q2. The service sector growth improved to 4.8% from 4.2% previously. The improvement probably came from fiscal stimulus, but the impact wasn’t through consumption.

We say this because our estimates based on the household survey data actually suggested that real household consumption slowed to about 3% yoy from about 4.5% in Q2. This means the improvement in services likely did not come from the consumer industry, nor from real estate given its downturn, but rather from other industries. While fiscal spending was lagging as of August, we suspect that it might have increased sharply in September, which would have led to an improvement in public sector services. We need to wait for the detailed breakdown to pinpoint what drove the pick-up in services.

Meanwhile, September monthly data showed some tentative sign of improvement. Industrial production (or value added in industry) picked up to 5.4% yoy from 4.5% in August, nominal retail sales improved to 3.2% from 2.1% previously, and fixed asset investment also picked up to 3.4% from 2% previously. There was a strong improvement in nominal infrastructure investment which grew almost 18% yoy in September, up from 7.4% on average in July-August. This suggests policy stimulus was at work.

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