China: October activity data reinforce a soft-landing - ING

According to Prakash Sakpal, Economist at ING, data supports their forecast slowdown in Chinese GDP growth to 6.7% YoY in 4Q from 6.8% YTD pace and soft-landing is positive for the local financial assets.

Key Quotes

“All of today’s activity indicators posted slower growth than in September. Industrial production growth of 6.2% was down from 6.6% (consensus: 6.3%). This is consistent with a fall in manufacturing PMI in October, while export growth also moderated in the month. Contrary to the consensus of acceleration, retail sales growth hit a more than a year low of 10%, down from 10.3% in September (consensus: 10.5%). This can be ascribed to more Chinese going overseas during the Golden Week National Day holiday rather than spending locally. We believe the underlining private consumption trend remains strong.”

“Fixed asset investment growth eased to 7.3% YTD from 7.5% in September (consensus: 7.3%). All three main FAI components - infrastructure, manufacturing and real estate - posted slower growth but the last two were the standout drivers of slower headline FAI growth, as infrastructure investment growth held steady above 19% YTD. Real estate investment growth was down to 7.8% from 8.1%.”

“The housing data continue indicate cooling of the sector coming into the fourth quarter. Home sales growth slowed 5.6% YTD from 7.6% and housing starts growth, which tracks sales growth with some lag, was down to 9.6% YTD from 11.1%. As such, we expect further easing in the property price inflation; the 70-cities average new home price inflation of 6.4% YoY in September was the lowest print in more than a year (October data due November 18).”

“Released yesterday, monetary indicators were not behind in reflecting weak activity. M2 growth dipped to a record low of 8.8% from 9.2% in September. New CNY loans at CNY663bn were the lowest in a year and so was the aggregate financing at CNY1.04tr. Lower shadow bank lending (entrusted loans, trust loans and undiscounted bankers’ acceptances) in October, CNY107bn vs. CNY393bn in September, was good news. However, there was no let-up in growth of outstanding shadow bank lending, which at 19.4% YoY accelerated from 18.6% in September.”

“Softer activity growth in October supports our forecast of slowdown in GDP growth to 6.7% in 4Q from 6.8% average pace in the first three quarters of the year. We see nothing in data to warrant a change in the current macro policy setting. The structural reforms is an ongoing theme in China and with consolidation of Pres. Xi’s position in the Chinese party investors can apparently rest assured of continuity of reforms. In the meanwhile, the soft-landing is positive for investor sentiment toward the Chinese financial assets.”