The numbers3Q GDP was weaker even than our below-forecast...

The numbers

3Q GDP was weaker even than our below-forecast numbers. 9.9% in first nine months, implying 9% in 3Q (we thought 9.3% versus consensus of 9.5-9.7%).
IP was very weak, just 11.4% YOY, lower than August despite the ending of the Olympics, and showing the PMI – which had suggested a jump in September – still isn’t particularly reliable.
The slowdown still seems more on the export side. FAI was up 29%YOY in September, and retail sales growth is still running at 23.2%, so in volume terms still near record highs.
The reason for the strong retail sales figures is good income growth. Urban income growth in 3Q was sill running at around 10%YOY in real terms. Rural areas are still having a stellar year, with real income growth in first three quarters of 11%.
Finally, inflation is over as a risk. CPI fell again to 4.6%, from 4.9% in August. Also, the collapse in producer prices that we have been talking about is starting, with PPI falling for the first time this year, from 10.1% to 9.1%.


Implications

Consumption is holding up nicely, and will have more fiscal support in the next few months. The risk is with the industrial economy, but with the receding of inflationary risks, policy support for growth will be aggressive.
The government is already working on measures to boost property. In addition, there is little restraint on monetary easing, and with the RRR still at around 17% and interest rates at near 7%, Beijing still has plenty of ammunition.

Paul Cavey
Head of China Economics
Macquarie Capital Securities