China’s economic activity continues to hold up, but overall investments to slowdown in near term

The Chinese economic growth continues to remain firm quite surprisingly. The economic growth is mainly driven by a rebound in corporates due to a recovery in domestic orders and increased sales prices that has stimulated profits and revenues, noted DNB in a research report. The increase in investments has been mainly driven by SOEs until now and has begun to spread, with private enterprises now indicating a moderate improvement.

In the meantime, China’s household sector is easing, with retail sales volume growing at its weakest pace since December 2005. The deceleration of retail sales is mostly driven by slower wage growth, both in real and nominal terms.

The SOE investments, in the short-term are expected to wane, which might result in a deceleration in overall investments. Moreover, with the housing market easing, real estate is expected to weigh on activity growth. Furthermore, the scope for higher leverage in China’s corporate sector is limited, which would also be a drag on the economic growth. But it is quite unlikely that the authorities would permit growth from slowing too much. This signifies that additional stimulus would come next year, added DNB.