China’s growth likely to moderate in the second half of this year, says Commerzbank

China’s economy grew 6.9 percent y/y in the second quarter of 2017, a notch higher than market expectations and well above the growth target of 6.5 percent. On a seasonally adjusted basis, the economy expanded by 1.7 percent quarter on quarter, compared with 1.3 percent in the previous quarter.

According to China’s official statistics, the economy should have grown 6.7 percent y/y if calculated from the GDP index (which is seasonally adjusted), 0.2 percentage points lower than the headline growth numbers. Unfortunately, past experience suggests that China only revises its headline GDP figures at a very small magnitude.

Other than the unevenness in the economy, China’s investment growth is also likely to moderate in the second half of this year. There are two factors behind the slowing investment momentum. First, planned new investments have lost steam entering the year of 2017, suggesting that fiscal spending has been gradually fading. This means that investment growth has already peaked in Q1, and a softening can be expected in the coming quarters, Commerzbank reported.

Second, the policy tightening, including the measures in the property and financial sectors, has dragged down investment. Indeed, property prices have peaked in China, and housing sales in big cities have illustrated a sluggish momentum in tandem, which somewhat reminds me of the property-led economic slowdown in 2010-2015.

Meanwhile, with growth in H1 2017 above the 6.5 percent growth target, the overall policy tone will remain unchanged, and the Chinese authorities will continue to conduct "deleveraging" efforts in the coming quarters, the report added.

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