Why market still feels cold in spite of a potential realization of government’s growth target of “around 5%”?
Key Points
- China’s 3Q GDP growth surprised market to the upside on both y-o-y and q-o-q basis. Chinese economy expanded by 1.3%qoq (up from Q2’s 0.5%qoq) and by 4.9%yoy (down from Q2’s due to base effect) in Q3.
- Chinese economy managed to grow by 5.2%yoy in the first three quarters this year. To achieve this year’s annual growth target of the ‘around 5%’, Chinese economy only needs to grow 4.4%yoy in Q4. Given the low base in Q4 2022 and positive effects of polices, we think it is likely that Chinese economy will meet the government’s target. We revise up China’s 2023 GDP growth to 5.0 (up from previous 4.8%) and keep the 4.8% GDP growth forecast unchanged for 2024.
- The answer to the question is on “prices”. The fact that Chinese GDP deflator was in a negative range, and the divergence makes the market feels colder, as factors like revenues and profits of companies are all in nominal values, and their fluctuations are closer to nominal GDP growth than actual GDP growth. China’s nominal GDP only grew 4.4% this year thus far.
- Positives were shown in September monthly numbers: year-over-year growths of IP and retail sales beat market expectations; manufacturing and infrastructure FAI remained the key driver for overall FAI; real estate investment and activities rebounded sequentially from August. But, on a sequential basis, FAI, IP and retail sales expanded by a slower pace in September.
- This September, major property sector activity indicators (except floor space completed) still contracted by double digits growths. There are still obstacles to a strong trend recovery of the real estate industry, as the housing inventory is at high level and continues to build up, confidence towards the overall economy and the sector will only improve gradually, and developers make news headlines on their defaults (risks).
- On USD/CNY, lingering concerns on Chinese property sector and the still large negative interest rate differentials over the US will continue to weight on the Yuan in near term. Additionally, concerns on the risks of oil price spikes and stronger US dollar due to Middle East tensions, could add upside pressure for the USD/CNY. That said, with PBOC’s clear aim in maintaining a “stable currency”, we think that USD/CNY pair is still likely staying below 7.35 in near term.
MUFG PERIOD-END FORECASTS
Source: Bloomberg, MUFG GMR
