There were two pieces of good news and one disappointment in today’s Chinese activity data.

Annual growth of nominal GDP rose further to 7.8% in the third quarter, the fastest for two years and up from a low of 6.0% in the third quarter of 2015. Growth of real GDP was stable at 6.7%, while the annual increase in the GDP deflator firmed from 0.6% to 1.0%. The nominal pick-up was predicted by a rise in money growth from spring 2015, with the latest monetary data suggesting further acceleration – see first chart and yesterday’s post.


The second positive was a further recovery in private fixed asset investment, which rose by an annual 4.5% in September, having fallen 1.2% in June. The investment revival follows a strong rebound in profits and robust growth in money holdings of non-financial enterprises (NFEs) – second chart.


The disappointment was that annual industrial output growth slipped from 6.3% in August to 6.1% in September. Industrial activity has been held back factory closures in “old economy” activities – coal output, for example, fell by 12.3% in the year to September. The rebalancing of the economy away from heavy industry is evidenced by electricity consumption data: annual growth in the tertiary (services) sector was 14.9% in September versus 1.5% for secondary industry (i.e. manufacturing).

Pessimists argue that GDP growth has been boosted by temporary stimulus measures (e.g. auto sales incentives due to expire at end-2016) and an overheated housing market, which the authorities are now taking steps to cool. The view here is that a renewed economic slowdown is unlikely given monetary trends, an emerging investment recovery and the current leadership’s desire to maintain solid growth ahead of the autumn 2017 party congress, when key positions will be allocated.