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Amid concerns of a hard landing, China’s latest data dump was largely positive. Third quarter GDP came in line with expectations and industrial production, retail sales and fixed asset investment all beat expectations.
Bank of America’s Ting Lu thinks third quarter GDP has troughed. He also says that there is increasing amount of evidence for green shoots in the economy.
But first his reaction to the latest data:
On GDP which was up 7.4 per cent on the year, in line with expectations, he writes:
“Our overall take is that the 7.4% yoy GDP growth in 3Q could mark the trough. It might take another couple of quarters for growth to significantly recover, but we believe the risk for a hard landing is getting increasingly smaller, we at least could be confident to expect stabilisation, and we even see some upside risk to our growth outlook at 7.6% in both 2012 and 2013.”
GDP was also up 2.2 on a quarter-over-quarter basis, but this he says should be taken with a “pinch of salt”. Kate Mackenzie at the Financial Times has a great piece on why this GDP measure is particularly poor
Industrial production rose 9.2 per cent on the year and the recovery was driven by heavy and light industries according to Ting. The largest growth was recorded in the output of cement and crude oil which climbed 12 per cent YoY and 7 per cent YoY respectively, and that of steel which was up 4.9 per cent.
Fixed asset investment (FAI) is believed to have picked up on recent policy easing focused on infrastructure projects. Railway FAI Growth surged 77.2 per cent in September, from 37.2 per cent the previous month. Manufacturing FAI also picked up in September.
Retail sales also climbed in nominal and real terms. Sales of home appliances and construction materials surged as expected because of the recent pick up in home sales. Auto retail sales slowed to 1.7 per cent YoY. This according to Lu is because, “Japanese brands’ sales plunge on anti-Japan sentiment triggered by Japanese government’s acquisition of the Diaoyu Islands in mid-September.” On a side note, we previously reported that Japan’s loss isn’t America’s gain in the Chinese auto market.
With policymakers wrapping up major decisions on the leadership handover, attention is being focused on stabilizing economic growth again. And in the light of the recent slowdown, and the latest economic data, Ting expects more easing, but no massive stimulus.
- Ting expects no more interest rate cuts, and two 50 basis point reserve requirement ratio (RRR) cuts before the end of 2012. But rising renminbi deposits reduces need for this.
- Annual new loans forecast is likely to be 8.5 trillion yuan and more of this is from corporate bonds and trust loans.
- Finally he doesn’t expect policymakers to unleash another 4 trillion yuan stimulus like 2008, instead he “expects Beijing to be more aggressive in accelerating start-up of new projects and constructing existing projects.”