The third quarter has marked an “economic turnaround” for China, writes Standard Chartered’s Wei Li.
“GDP growth picked up to 7.8% y/y in Q3 from 7.5% in Q2, as the market expected,” Li wrote to clients. “Labour market remains robust; both urban and rural household income saw faster growth in Q3.” From the note:
The aggregate labour demand-to-supply ratio reported by 100 or so job centres edged up to 1.08 in Q3 from 1.07 in Q2; a reading above 1 is positive. Moreover, urban households’ disposable income rose by 7.2% y/y in real terms in Q3, after growth slowed to 6.4% in Q2. This has supported a mild pick-up in urban household consumption, which grew 5.6% y/y in Q3, up from 4.6% in Q2. Real growth in rural households’ cash income also accelerated, to 10.2% y/y in Q3 from 8.9% prior. Migrant workers’ real wage growth stayed robust at 9.9% y/y in Q3.
Bank of America’s Ting Lu looks at whether the recovery is sustainable or not. “Based on QoQ sequential growth, we believe the growth peak was behind us in 3Q and we will surely see a decline of QoQ growth to around 1.8-1.9% in 4Q. In yoy terms, we could see a small moderation to 7.7% in 4Q on higher comparison base, but we might see a rebound again in 1H14 to around 7.8-8.0% on a low comparison base. We maintain our 7.7% and 7.6% annual GDP growth forecasts for 2013 and 2014,” he writes.
But according to Nomura economist Zhiwei Zhang, we’re about to see deceleration. “We have argued that China’s recovery is fundamentally unhealthy, as it has been mainly driven by heavy industry and stands in contrast to the principles recently espounded by both President Xi Jinping and Premier Li Keqiang — that a lower rate of GDP growth can be tolerated to ensure a better quality of growth in the future,” he wrote to clients.
The other question this year has been China’s credit conditions, but Li writes that “monetary policy has been effective so far, with differentiated treatment across sectors,” including restrictions on industries with overcapacity.