This morning the Chinese Statistical Office announced that China’s economy grew 6.8 per cent year on year in the third quarter. So for the first time in nearly two years growth slowed again slightly. In the second quarter a rate of 6.9 per cent was reported, and in the winter half year 2016/17 – contrary to expectations – the pace of growth even increased. But the economic growth rate that has now been reported remains above the government’s 6.5 per cent growth target for this year. So from the view point of the political leadership in Peking, the economy is “on course.” Nor does the result disappoint expectations in the market, which had anticipated that the pace of growth would slow slightly. With hindsight, only the reference made a few days ago by the head of the central bank to a growth rate of 7 per cent in the second half of the year has turned out to be misleading.
During the summer months industrial output and investment had a slight braking effect. Although growth increased in the manufacturing industry in September to chart a three-month high of 6.6 per cent, averaged out over the third quarter it was significantly below the figures from the first half of the year. As regards investment demand the ebbing thrust from last year’s big fiscal programme continues to make itself felt. But investment in the private sector also flagged again, with the slightly tighter monetary policy of the past few months undoubtedly playing a role here. Construction was also somewhat weaker. The number of home sales even shrank in the past quarter. The efforts made by a large number of local governments to limit speculative property purchases are apparently gradually beginning to have an impact. The retail trade, by contrast, made a stable showing, in line with the extremely good consumer climate. Exports are likewise showing significantly greater momentum again thanks to the good global economic trend since the beginning of the year. But foreign trade nevertheless probably failed to contribute to overall economic growth in the past quarter as China also imported far more again. However, this does at least suggest that the domestic economy remains robust.
Xi Jinping’s opening speech to the party congress yesterday has shown that the present president has achieved a central and undisputed position of power in the party and in the state. This should have paved the way for comprehensive economic reforms. But precisely in this respect Xi’s speech was a disappointment. While he announced a further opening up and liberalisation of the financial markets, he did not seem keen to tackle the reforms that are urgently needed with respect to the country’s inefficient and heavily indebted state-owned companies. Instead he raised the prospect of making state-owned enterprises “great and strong,” which does not sound like reducing overcapacity and leeway for more bankruptcies. But this is what would be required to solve the country’s structural problems in the long term. Yesterday Xi again emphasised the goal to double the size of the economy again by 2020, and so did not reject rigid growth targets. This is an advantage for the short to medium-term growth outlook as structural reforms would no doubt curb growth at the state-owned companies. For this reason, we continue to believe that economic growth will slow at most slightly in the next few quarters, but overall it will remain very stable. For this year we assume a growth rate of 6.8 per cent – which would mean the annual rate will be higher than in the previous year for the first time since 2010. In 2018 the average GDP growth rate will probably be only slightly below this level at 6.7 per cent.