Growth Rate Is Lower Than Targeted
Executive Summary
Our growth projection for 2014 falls between the government’s 7.5% forecast, and the lower projection of our pessimistic peers: we foresee 2014 growth at 7.4%. Though GDP grew 7.3% y/y in Q3, down just 0.2 pps from Q2, China’s main economic indicators suggested that the true situation might be worse. Industrial output was up 8% y/y, down 0.9 pps from Q2, and fixed asset investment increased 14.4% y/y, down 2.8 pps, to a record low. Retail sales of consumer goods were up 11.9% y/y in nominal terms, down 0.4 pps from Q2. Exports rose 12.9%, up 8 pps. Imports were stable, up 1.3% y/y.
The GDP deflator grew 1.33% y/y, almost at the same rate as in Q2, and far less than in previous quarters. The RMB exchange rate to the dollar is quite constant, at around 6.16, but the RMB has appreciated dramatically against other major currencies, including the euro and yen. We consider short-term RMB appreciation against the dollar unlikely, considering the RMB’s large appreciation to other currencies. National fiscal revenue and expenditure increased 8.1% and 13.2% in the year to September, respectively, down 0.5 and 2.6 pps from H1. The trade surplus in Q3 was $128.7 billion, a record high. We estimate that there was significant capital outflow, which might be due to foreign investors’ fading confidence amid macroeconomic slowdown.
Of 70 major cities, 64 saw m/m price declines for new homes in July, vs. 55 cities in June, the National Bureau of Statistics (NBS) said in a statement. Previously, limitations on real estate purchases and mortgages were implemented in 46 major cities. To August 17th, 37 of these 46 cities had eased their restrictive policies on real estate purchases and mortgages. We expect housing prices to keep declining, despite such easing, but that price collapse is unlikely, given China’s strong economic fundamentals (such as 7% GDP growth, continuing urbanization) and the proactive bubble- prevention policies of recent years.
The Ministry of Commerce announced that FDI from January to August was $78.34 billion, down -1.8% y/y, and in August only $7.2 billion, down -14%. We see the decrease as a result of economic slowdown, and uncertainties in the short-term economic situation. Over the long term, even pessimistic economists expect China to surpass the United States to become the world’s largest market -- and no competitive companies will be able to afford to ignore their investments in China.
The government took some actions to ease macroeconomic policies, though the overall policy is still over-tightened, evident in such measures as the high reserve requirement ratio (still over 20%) and interest rate (at a 3% as base rate), strict housing purchase restrictions, and lower state investment due to anti-corruption efforts. With deflation pressure (PPI has been negative for 32 months), we expect more easing policies to bring the over-tightened policies back to normal.
Now read on...
Register to sample a report