China Reports GDP Growth In line with Expectations

The latest third quarter economic growth figures from China show that the economy grew at an annual rate of 6.7% to September. The latest year on year figures are in line with prior expectations.

Retail Sales and fixed assets figures released by the China National Bureau of Statistics also met prior forecasts. However all not all data was positive. Industrial production for September showed a small contraction at 6.1%. This was against the 6.4% figure expected.

The Shanghai SE Composite Index (SHCOMP) closed up +0.03% on the news.

The figures show a continued trend of domestic consumption providing the predominant drive behind economic growth. In a statement accompanying the figures the stats bureau commented that the economy showed positive signs including a better than expected employment rate.

There is however no getting over the fact that much of the recent growth has been fueled by real estate gains. New home sales rose by 61% in September as the domestic property boom continues. This continued expansion in the red hot housing market remains a concern. Restrictions on home purchases and toughed mortgage lending rates implemented in early October, have yet to take effect. More fiscal tightening in this area is likely to follow as the government seeks to curtail the current rates of debt expansion.

Early this year poor figures led to investor fears that growth was faltering in the world’s second largest economy. The figures are largely seen as more as a stabilization of the Chinese economy rather than a return to more heady growth rates of the past decade.

Consensus expectation by analysts is that growth rates will continue to drop off into 2017.  The latest figures suggest that growth will drop another 0.01% next year. This is in spite of efforts by the government to avert a further slowdown through the use of fiscal stimulus. Whether this is a blip in the China growth story or the new normal remains to be seen. As a result many economists still see continued downside risks to investment.