China Q3 GDP beats expectations, hits 5-yr low

China’s economic growth decelerated to its lowest level in five years last quarter, dragged down by a softening property market. Today’s numbers increase the likelihood that Beijing will do even more to support economic growth but it may not result in the mass easing that the market is hoping for, at least not yet. Despite the fact that China’s economy grew at its slowest pace since the height of the global financial crisis, Beijing appears content to manage the slowdown with many small adjustments to policy, as opposed to mass easing in the form of significant cuts to the RRR and/or huge structural stimulus.

The drop in China’s growth rate was slightly less than expected as the economy only slowed to 7.3% y/y from 7.5%, instead of dropping to the 7.2% the market was expecting. The biggest weight on growth last quarter was China’s cooling property market, as we expected it would be. Last quarter we watched as more and more cities – including tier one cities – experienced falling property prices, which forced the relaxation of property curbs and even prompted some stimulus from Beijing.

Given the reliance of the broader economy on the real estate market, a continued deterioration in property investment may continue to weigh on overall economic growth. Nonetheless, Beijing has significant scope to ease policy further if it wants to. The most recent policy tools used by the PBOC indicate that the central bank is more comfortable using targeted stimulus to help support specific parts of the economy, instead of more wide-reaching measures. The PBoC has injected liquidity into the nation’s biggest banks and small lenders, either through direct injections or by lowering funding costs. Beijing has also eased restrictions that were aimed at limiting China’s property market, which was very overheated at the time of implementation. 

However, without further stimulus Beijing may not reach its growth target for this year. In saying that, officials have expressed that growth slightly below 7.5% may be acceptable. This makes the idea of masses stimulus very unappealing, especially given the current policy dilemma facing Beijing. It wants to support sustainable and healthy economic growth by it’s also attempting to make hard structural changes and steer the economy away from its reliance on unhealthy growth. The former denotes more monetary easing, while the latter requires a tightening of credit markets to starve some off-balance sheet lending.

The aussie

The Australian dollar reacted exactly as expected to today’s Chinese GDP figures – it jumped slightly higher after the mildly better than expected data. AUDUSD jumped above 0.8800, but the pair has since found some sticky ground around this level after giving up some its gains. We think today’s Chinese GDP report is broadly AUD positive as it reaffirms Beijing’s policy of using targeted easing as opposed to mass stimulus.