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China:Growth stabilised but quality worsened

类型:宏观经济  机构:野村国际(香港)有限公司   研究员:野村国际(香港)研究所  日期:2016-11-16
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Industrial production growth in October was unchanged from September at 6.1% y-o-y, exhibiting signs of a stabilisation in growth momentum.

    Fixed asset investment growth rose to a slightly better-than-expected 8.3% y-o-y ytd from 8.2% in September.

    Retail sales growth slowed to 10.0% y-o-y in October from 10.7% in September, much weaker than expected.

    We have raised our Q4 forecasts for real GDP growth to 6.6% y-o-y from 6.4% and our 2016 annual growth forecast to 6.7% from 6.6%.

    Industrial production (IP) has shown signs of stabilisation in the short term, prompting us to revise up our growth forecasts for Q4 IP and GDP. Industrial production growth in October was unchanged from September at 6.1% y-o-y, in line with Nomura forecasts (Consensus: 6.2%; Nomura: 6.1%; Figure 1). On a month-on-month basis, IP growth ticked up to 0.50% from 0.46%. Output growth picked up in both manufacturing and utility sectors but declined in the mining sector. To reflect the stabilisation of momentum suggested by IP growth in October, we have raised our Q4 IP growth forecast to 6.0% y-o-y from 5.6% and our Q4 GDP growth forecast to 6.6% y-o-y from 6.4%, which takes our 2016 annual GDP growth forecast to 6.7% from 6.6%.

    The improvement in growth momentum has been led mainly by fixed asset investment (FAI), particularly property investment. FAI growth edged up to 8.3% y-o-y ytd from 8.2% in September, slightly better than generally expected (Consensus and Nomura: 8.2%; Figure 2). Property investment growth rose by a further 0.8pp to 6.6% y-o-y ytd. Possibly supported by property investment, growth of private investment also rose by 0.4pp to 2.9%. Elsewhere, growth of manufacturing investment remained unchanged while infrastructure investment growth slowed further to 17.6% in October.

    Property investment growth might start to weaken months later, as it takes time for policy tightening in the housing market to pass through to property investment. Property prices in select cities with overheated markets have shown signs of cooling in the first half of October, and national property sales growth ticked down in October. However, growth of floor space started and under construction rose slightly (Figure 3), consistent with relatively resilient property investment. We believe that the strength in property investment is likely last the rest of this year, due to both a low base last year and the lag of policy effectiveness.

    Consumption seems to have been negatively affected by the surge in property prices. Retail sales growth slowed to 10.0% y-o-y in October from 10.7% in September, much weaker than expected (Consensus: 10.7%; Nomura: 10.5%; Figure 4). Excluding price effects, real retail sales growth slowed more by 0.8pp to 8.8% y-o-y in October. The weakness was partly due to last year’s high base, as tax incentives on low-emission autos effective since last October pushed up auto sales (sales growth jumped to 7.1% y-o-y in October 2015 from 2.7% in September). We expect the high base effect to continue in the last two months of 2016. Moreover, the low growth in October may also reflect weaker consumption demand, as the seasonal adjusted month-on-month growth of retail sales slowed to 0.71% in October from 0.81% in September, its lowest in 45 months. Consumption may have weakened due to rising household debt, as consumer loans (mainly mortgages) have jumped on overheated markets in recent months. If sluggish retail sales growth lasts, it could slow the rebalancing of growth from investment to consumption.

    Overall, the October data released today suggest growth momentum has stabilised. However, the quality of economic growth is likely to worsen, as growth is now more driven by property investment, while consumption growth has started to lose steam.

    On the policy front, signs of a stabilisation in growth momentum confirm our call for no more cuts to the reserve requirement ratio or interest rates over the rest of this year.

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