China Property:“other”services contribute more to GDP;financials normalise

The GDP breakdown by sector, released over the weekend, shows that the real estate and “other” services sectors picked up, offsetting a smaller contribution from financial services. We estimate that real estate’s contribution surged by 0.4 percentage points (pp) to 0.6pp in Q1 on a property market rally from 2015, while that of “other” services improved another 0.2pp to 1.9pp. These contributions were also significantly higher than their Q1 averages in 2012-14.

    Our estimates suggest that financial services’ contribution to GDP growth fell by 0.4pp to 0.8pp in Q1 from an outsized 1.2pp in 2015, amid a sharp fall in growth of equity turnover to -22% y-o-y in Q1 from 244% in 2015. However, this has yet to fully normalise, in our view.

    Looking ahead, we see downward pressure on growth coming from the real estate and financial services sectors. Both may have been aided by very strong credit extension in Q1, which in turn increases financial risks in the medium term (see China: Credit expands rapidly but efficiency deteriorates, 18 April 2016). We believe such a rapid expansion in general credit is unlikely to be sustainable and thus maintain our GDP growth forecast of 6.2% for 2016.