China Upgrades Growth Outlook As Recovery Gathers Momentum

By Glenn Dyer | More Articles by Glenn Dyer

China’s National Statistics Bureau (NBS) reckons 4th quarter economic growth will rise from the moderate levels of the third quarter – a forecast made after the final tranche of data for the quarter showed solid outcomes for investment, output, and retail sales.

Fu Linghui, NBS spokesman, was quoted by Reuters as telling a briefing after the data releases that consumption prospects are improving, with the services industry showing good recovery momentum.

The latest data showed on Monday that China’s industrial output rose at a faster-than-expected pace in October, while the retail sales growth was a touch slower than expected.

Industrial output climbed 6.9% in October from a year earlier, steady with September’s outcome (meaning no growth) but stronger than the 6.5% rate forecast by economists.

Retail sales rose 4.3% on-year, missing market forecasts for 4.9% growth but faster than a 3.3% increase in September.

China’s auto industry reported robust 12.5% growth in October thanks to surging demand for electric cars and trucks.

Reuters also pointed out that domestic tourism also saw a strong rebound over the Golden Week holiday at the start of last month, although levels were still well short of those in 2019.

But retail sales remain subdued which are still below pre-COVID levels, especially in real terms, NAB economists pointed out on Monday.

Fixed-asset investment rose 1.8% in the 10 month January-October period from the same period last year, compared with a forecast 1.6% growth and the 0.8% increase in the first nine months of the year.

Private-sector fixed-asset investment, which accounts for 60% of total investment, fell 0.7% in January-October, compared with a 1.5% decline in the first nine months of the year. Public sector investment continues to pick up the slack and lift overall growth.

Economists agree with the NBS view of the economy heading into 2021, arguing there is enough momentum for a bit more expansion.

But they caution that the growing levels of COVID-19 cases in Europe and the US remain the big danger to Chinese exports and demand.

Data also released on Monday on Chinese property investment showed further growth, but some signs of prices steadying.

As in other countries property has emerged as enjoying strong demand in China (as it is in Australia).

October real estate investment was up 12.7% from a year ago, the fastest pace since July 2018, and quickening from 12% seen in September.

Property sales by floor area rose a solid 15.3%, the highest in over three years, while new construction starts expanded 3.5%, improving from September’s fall of 1.9%.

But price growth remains modest as government efforts to prevent bubbles in the property sector seem to be taking hold with Chinese new home prices growing at a slower monthly pace in October amid restrictions imposed in some big cities.

The strong rise in property investment helps explain why real fixed asset investment grew strongly in October, up by 11.5% year on year.

National Australia Bank economists say ” This was the strongest increase since May 2016. Private sector investment has grown more rapidly in recent months, as growth in real estate investment has continued to accelerate.”

The property boomlet also helps explain the sharp rise in private investment in recent months and the rise in bank loans.

The NAB economics team pointed out that in the first ten months of 2020, new credit issuance totaled RMB 31.0 trillion, an increase of 44.5% year on year.

“Bank loans account for the largest share of the total, however, these loans have grown relatively slowly this year – increasing by 22.8% YoY to RMB 17.6 trillion,” the NAB pointed out.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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