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China's economic data bring a glimmer of dawn
By Li Wei, Shen Lan, Stephen Green |
October 24, 2012, Wednesday
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Print Edition
Print Edition
CHINA'S official third quarter GDP growth report sent a very positive message to the market. Despite the slowdown in headline year-on-year GDP growth to 7.4 percent from 7.6 percent in the second quarter, sequential growth momentum improved considerably.
According to official data, growth picked up to 9.1 percent from 7.4 percent on a quarter-on-quarter, seasonally adjusted annualized rate basis. Our calculation suggests a much milder rebound, to 7.7 percent quarter-on-quarter adjusted rate in the third quarter from 7.1 percent in the second quarter.
The improvement in third quarter GDP growth was broad-based, according to the official data.
The breakdown by industry suggests that growth in the secondary industry, comprising the industrial and construction sectors, which account for about 47 percent of total GDP, rose to 7.7 percent year-on-year in the third quarter from 7.5 percent in the second quarter. Growth in services industries, which account for about 43 percent of GDP, picked up to 8.3 percent year-on-year from 7.9 percent.
Electricity production growth slowed to 1.5 percent year-on-year in September from 2.7 percent in August.
While the evidence may be mixed, we see the latest data as plausible evidence that growth bottomed in the third quarter. That said, the pace of recovery is likely to be slower than that suggested by the official industrial production and GDP data.
Labor-market and income growth remained solid in the third quarter, which is positive for the growth outlook. According to the labor demand-to-supply ratio, which is compiled based on information from about 100 city job centers, demand for labor continued to exceed supply in the third quarter.
As a result, income growth stayed strong. In real terms, urban households disposable income per capita grew 9.8 percent year-on-year in the third quarter, and rural households per-capita wage income grew 14.3 percent annually. Both improved compared to the second quarter.
Consumer spending remains robust. Retail sales growth (in real terms) accelerated to 13.2 percent annually in September from 12.1 percent in August (though the data also includes spending by the government and companies).
The sharp slowdown in real urban household consumption spending growth, to 5.8 percent year-on-year in the third quarter from 8.5 percent in the second quarter, was likely caused by an unusually high base effect, in our view.
Stark contrast
This slowdown is in stark contrast with the improvement in consumer confidence, which turned positive again in September after staying below the neutral 100 level for the previous three months.
Official fixed asset investment growth picked up strongly in September, to 22.2 percent year-on-year from 19.1 percent in August.
Growth in fixed asset investment in real-estate development slowed to 14.2 percent year-on-year in September from 16.7 percent in August. Generally speaking, though, the housing market performed slightly better in the third quarter than the previous, reflected increasing land purchases by developers.
In summary, sentiment towards China has turned more positive in the last few weeks. Our view that the mild stimulus that began in the second quarter would have a stabilizing effect by this quarter appears to have been correct.
We believe China's GDP growth is bottoming out. We expect the recovery trend to continue in this quarter. GDP growth is likely to rebound marginally to 7.6 percent year-on-year this quarter, taking the annual average to 7.7 percent.
The article was edited for length. The opinions expressed are their own.
According to official data, growth picked up to 9.1 percent from 7.4 percent on a quarter-on-quarter, seasonally adjusted annualized rate basis. Our calculation suggests a much milder rebound, to 7.7 percent quarter-on-quarter adjusted rate in the third quarter from 7.1 percent in the second quarter.
The improvement in third quarter GDP growth was broad-based, according to the official data.
The breakdown by industry suggests that growth in the secondary industry, comprising the industrial and construction sectors, which account for about 47 percent of total GDP, rose to 7.7 percent year-on-year in the third quarter from 7.5 percent in the second quarter. Growth in services industries, which account for about 43 percent of GDP, picked up to 8.3 percent year-on-year from 7.9 percent.
Electricity production growth slowed to 1.5 percent year-on-year in September from 2.7 percent in August.
While the evidence may be mixed, we see the latest data as plausible evidence that growth bottomed in the third quarter. That said, the pace of recovery is likely to be slower than that suggested by the official industrial production and GDP data.
Labor-market and income growth remained solid in the third quarter, which is positive for the growth outlook. According to the labor demand-to-supply ratio, which is compiled based on information from about 100 city job centers, demand for labor continued to exceed supply in the third quarter.
As a result, income growth stayed strong. In real terms, urban households disposable income per capita grew 9.8 percent year-on-year in the third quarter, and rural households per-capita wage income grew 14.3 percent annually. Both improved compared to the second quarter.
Consumer spending remains robust. Retail sales growth (in real terms) accelerated to 13.2 percent annually in September from 12.1 percent in August (though the data also includes spending by the government and companies).
The sharp slowdown in real urban household consumption spending growth, to 5.8 percent year-on-year in the third quarter from 8.5 percent in the second quarter, was likely caused by an unusually high base effect, in our view.
Stark contrast
This slowdown is in stark contrast with the improvement in consumer confidence, which turned positive again in September after staying below the neutral 100 level for the previous three months.
Official fixed asset investment growth picked up strongly in September, to 22.2 percent year-on-year from 19.1 percent in August.
Growth in fixed asset investment in real-estate development slowed to 14.2 percent year-on-year in September from 16.7 percent in August. Generally speaking, though, the housing market performed slightly better in the third quarter than the previous, reflected increasing land purchases by developers.
In summary, sentiment towards China has turned more positive in the last few weeks. Our view that the mild stimulus that began in the second quarter would have a stabilizing effect by this quarter appears to have been correct.
We believe China's GDP growth is bottoming out. We expect the recovery trend to continue in this quarter. GDP growth is likely to rebound marginally to 7.6 percent year-on-year this quarter, taking the annual average to 7.7 percent.
The article was edited for length. The opinions expressed are their own.
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