China Q3 growth likely to be tad lower, well within the state’s targeted range

China’s economic growth during the third quarter is expected to be a tad lower than that in the previous quarter, although reasonably well within the state’s targeted range of. The government’s reform plans and successful rebalancing of the economy towards consumption boosted consumers’ confidence, which will positively contribute towards the growth of the Chinese economy.

China’s gross domestic product (GDP) is expected to grow at an annual rate of 6.5 percent in Q3, slightly lower than Q2’s 6.7 percent, DBS reported.

The average retail sales during the period of July-August grew 10.4 percent y/y, higher than 10.2 percent in Q2. The average growth of industrial production also edged up to 6.2 percent y/y, from Q2’s 6.1 percent, attributed to the country’s capacity cut and destocking which trimmed oversupply.

However, the country’s private investment seems downgrading. Coupled with a discouraging global economic outlook and political uncertainty worldwide, companies seem worried on risking their capital investments. Also, a we4aker yuan has consistently led to fall in the country’s exports, which has added to investor pessimism as well.

Further, the cumulative annual growth of fixed asset investment fell further to 8.1 percent from 9.7 percent in the second quarter. In US dollar terms, exports decreased an annualized 10 percent in September, the largest drop since February when outbound shipments contracted 25.4 percent.

"Looking forward, downward pressure on growth could mount on recently announced property tightening measures," DBS commented in its latest research note.

Meanwhile, the Chinese economy also faces risks in the short-term, owing to a reduction in credit growth, as a result of fall in consumer spending. However, such a path of deleveraging is liable to push the Chinese economy on a long-term sustainable path, thus reducing the risks of a bad-debt crisis.