China: Stable growth in Q3, likely to slow in coming quarters - Wells Fargo

Analysts from Wells Fargo, point out that Chinese GDP growth remained stable during the third quarter but they warn about a slowdown ahead. 

Key Quotes: 

“Chinese GDP in Q3 was in line with the overall consensus and with our own call of 6.7 percent growth from a year earlier. After slowing for four successive quarters in 2015, Chinese headline growth has stabilized and has registered 6.7 percent growth for three consecutive quarters.”

“Quarter-over-quarter growth also matched the consensus call of 1.8 percent. A breakdown of real GDP into its demand-side components is not yet available, but data by sector level shows that output growth in the “primary sector,” which includes agriculture and forestry, and growth in the “tertiary sector,” which includes services, increased year over year from Q2.”

“Residential investment should decelerate in coming quarters, because lending standards likely will not be relaxed even further. We are of the opinion that the Chinese economy will more or less experience a “soft landing,” growing 6.0 percent and 5.5 percent in 2017 and 2018, respectively.”

“The slowdown, we believe, will be the result of China’s overleveraged business sector, especially its state owned enterprises which are often kept afloat by the Chinese government. Furthermore, our currency strategy team sees the US dollar strengthening against the renminbi at a modest pace. However, China’s central bank’s large reserves should help smooth out any large potential currency swings.”