The State of the Economy
Quarter-over-quarter GDP growth on a seasonally adjusted basis was 2.2%, an improvement from Q2. Weaker growth in industrial production was partially offset by stronger agriculture and services sector growth. Slowing down at a more moderate pace suggests that the economy may be bottoming out.
Industrial Production Rebounds
In September, the total industrial value added was up by 9.2%-over-year or 0.79% month-over-month, accelerating from 8.9% in August. Growth rebound was especially strong in construction materials such as the iron and steel sector, railways, shipbuilding, aerospace and other transport equipment manufacturing, as well as electrical machinery and equipment manufacturing. Growth in the auto manufacturing, general equipment manufacturing and textile industries slowed significantly.
One of the clear signs of the economy bottoming out is the high level of finished goods inventories, where an ongoing process of inventory de-stocking was observed in Q3. These inventories historically have had a negative correlation with GDP growth. The inventory data in the current quarter predict GDP growth 6 months from now (leading indicator). The graphs above suggest that the industrial production will most likely pick up in Q4. Combined with stabilizing quarterly GDP growth at annual rates over the last two quarters, the downward trend seems to have stopped for now. China's economic growth this year is still on track to meet the government's target growth rate of 7.5% for the year.
Trade Surplus Amid Weak External Demand
US 2012 exports ($111 billion) rose 6.5% year-over-year, helped by stimulus efforts, Christmas shopping orders, and Chinese Government efforts to reduce transaction costs and improve efficiency for trade firms. Imports ended three consecutive months of negative growth with a 2.4% increase from a year earlier. In September, China's trade surplus increased to USD315 billion or an increase of 6.6%.
Overall, year-to-date, China's total foreign trade was up 6.2% year-over-year for the first three quarters of 2012. This is down significantly from the annual 20 to 30% growth rates seen in previous years. Export growth is expected to remain sluggish as a consequence of weak demand from major markets, particularly in China's largest trading partner, the EU.
The Housing/Construction Market
Property sales are up, with a rebound in the property market was apparent in Q3. Growth of property sales increased from -7.7 year-over-year in Q2 to 6% year-over-year in Q3. Residential sales improved from -8.3% to +7.3%. This led developers to accelerate project completions and to bring more products onto the market.
Property sector lending by Chinese financial institutions surged in the third quarter, especially for the developers of land, despite the economy losing steam for 7 consecutive quarters. Data released by People's Bank of China showed the equivalent of $66.65 billion was lent out to the real estate sector from July to September, a rise of 29% on the second quarter.
However, new property starts remained very weak, declining by about 12% in both Q2 and Q3. While the rest of the world is busy deleveraging, China's property developers seem to be continuing to increase their leveraging, despite government efforts to restrict loans. Property developers' capital grew at 10 percent in Q3, up from 5.7 percent in the first six months of the year, and their loans grew at 12.9 percent in the last quarter, compared to 8.1 percent in 2012 H1.
Source: Dataweb.gov, Canadian Embassy, Beijing