China’s gross domestic product growth eased slightly to 7.4% in the third quarter from 7.6% in the second quarter but various other data for September were stronger than forecast, prompting analysts to say the world’s second-largest economy has bottomed out.
Retail sales growth and fixed investments accelerated and the property market continued to recover, according to Flemming Nielsen, a senior analyst at Danske Bank.
“We expect it to be a relatively moderate recovery,” Nielsen said. His bank forecasts GDP growth of 7.7% this year and 8.5% from next year.
Industrial production grew by 9.2% in September from 8.9% in August and versus consensus expectations of a 9% advance.
Fixed asset investments (FAI) were also better than expected, increasing 20.5% year to date versus consensus estimates of 20.2%. Danske Bank has calculated that FAI growth accelerated to 23.1% in September from 19.4% in August. “This is consistent with the pick-up in credit growth – particularly longer-term financing – we have seen in recent months,” Nielsen said.
Retail sales growth also accelerated to 14.2% in September from August’s 13.2% growth.
Societe Generale analyst Wei Yao said infrastructure investment “provided most of the push” for China’s growth while housing was “only lukewarm.”
INVESTMENT JUMP
Investment in railways surged by 78% year-on-year in September and investment in roads jumped by 37.7% but Yao said she didn’t expect “such torrid paces to sustain for long.”
“Even after four upward revisions, the 2012 full-year target for railway FAI is just 10% growth compared to 2011,” Yao wrote in a market note, adding that “the central government has showed no intention to hike the target under the 12th five-year plan.”
There were fewer signs of solid recovery in manufacturing activity, with manufacturing FAI growth weakening to 23.5% year-on-year in September from 24% year-on-year in August, and “none of the housing data was particularly upbeat,” the Societe Generale analyst noted.
The bright spot for Yao were the strong retail sales, which show a “relatively resilient job market” and “healthy household balance sheet.”
Evidence of “green shoots” in China is seen by analysts at Bank of America Merrill Lynch, too. They point to transportation, commodity, exports, the property market, credit data, tourism during the Golden Week holiday and restocking by manufacturing companies as showing signs of strength.
“To be sure, we believe it might take another couple of quarters from growth to significantly recover,” Bank of America Merrill Lynch’s economists Ting Lu and Larry Hu wrote in a research note.
“However, we believe the risk of a hard landing is getting increasingly smaller, we at least could be confident to expect stabilization, and we even see some upside risk to our growth outlook,” they wrote.
CONSUMER CONFIDENCE
China’s “surging” export growth in September, when sales abroad rose 9.9% from 2.7% in August year-on-year, coupled with Taiwan’s export growth accelerating by 10.4% after a 4.2% decline in August, bode well for the economy, they said.
“In our view, it’s driven both by new launch from major technology firms as well as a recovery of consumer confidence in the run-up to holiday seasons in developed markets,” the BofA Merrill Lynch analysts said.
Another good sign was consumer behavior during the 8-day National Day Golden Week holiday between September 30 and October 7, as in China there is no indicator for consumer confidence and “what people do on holiday could be a nice proxy for that,” according to the BofA Merrill Lynch economists.
They noted that during the Golden Week the number of tourists increased 21% and revenue from tourism was up 25%, compared with 9% and 11% respectively in the same 2011 period.
The robust data shows that employment is “still fine” and spending power has increased as salaries rose 13.1% in the first half of the year and that ordinary Chinese consumers are more confident in China’s economic fundamentals than financial investors, the analysts said.