- Data released over the past month suggest the Chinese economy has started to recover moderately on the back of stronger private consumption and investment demand. Exports have also been surprisingly resilient in the past two months as stronger exports to other emerging markets have offset the continued weakness in exports to Europe.
- Subdued imports of commodities suggest that inventories of commodities are still being cut, albeit improving final demand suggests these inventory cuts will soon come to an end.
- With a continued recovery in the property market since May the tail risk of a collapse in the property market has declined and, in our view, is very low in the short run. The biggest short-term risk is now the external development.
- We do not expect any easing after the completion of the leadership transition tomorrow, albeit the removal of the political uncertainty could by itself boost investment demand slightly. The biggest impact of the leadership transition will probably be more focus on longer-term structural economic reforms but possibly also a larger tolerance for slower growth.
- We expect GDP growth to accelerate moderately from 7.4% y/y in Q3 to 7.8% y/y in Q4 and 8.3% y/y in Q1 13. We maintain our above-consensus forecast of 8.5% GDP growth in 2013.
The data for October on balance beat expectations and paint a relatively encouraging picture of the Chinese economy. In line with the data for September they suggest that the Chinese economy is recovering moderately supported by improving domestic demand and surprisingly resilient exports.
Growth in industrial production in October accelerated for the second month in a row to 9.6% y/y from 9.2% y/y in September. Seasonally adjusted industrial production increased 0.8% m/m after increasing 1.1% m/m in the previous month. In line with the recent manufacturing PMIs growth in industrial production appears to have picked up some pace in recent months. Separately released data for volume production of key products also showed strong gains in production of cement and steel products.
Growth in retail sales in October also accelerated for the second month in a row to 14.5% y/y in October from 14.2% y/y in September. As seen in the chart, growth in real retail sales appears to have picked up some pace in recent months compared to relatively subdued growth through most of last year.
Within retail sales there was particularly strength within consumer goods such as furniture (+24% y/y) and construction materials (+26% y/y) dependent on the house market. However, sales of passenger cars remained relatively subdued in October as the mass consumer boycott of Japanese branded cars continued to weigh on overall auto sales.
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