Chinese economy likely to face structural challenges

The Chinese GDP growth fell to 6.9% in Q3, below the 7% annual growth target. Old growth drivers like industry and investment are losing their significance and new drivers like consumption and service sector are expanding robustly but insufficient to keep growth abnormally high. Government stimulus will prevent the economy from free-falling but continued reliance on these stimuli may create longer-term problems for the economy, says Nordea bank.

As the higher frequency indicators have suggested, the Chinese economy struggled in Q3, when it grew by 6.9% y/y, lower than the 7.0% in Q1 and Q2. This was in line with market consensus but lower than the expectation of 6.6%. Quarterly growth was 1.8%, same as Q2 after revision.

"The Chinese economy will likely continue facing structural challenges such as overcapacity and corporate debt overload that limits business investment appetite. However, we continue to expect no imminent collapse of the Chinese economy as government support will likely keep growth fairly stable. The government stimuli are not likely to boost GDP growth significant, only sufficient to keep growth free-falling. We expect GDP growth to be 6.8% in Q4", argues Nordea Bank.