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Mizuho China Business Express Economic Journal (No October 27, 2017 Mizuho Bank (China), Ltd. Advisory Division ―The macroeconomy― Mizuho China Business Express Economic Journal (No. 72) Summary Though China’s real GDP growth rate slowed slightly to +6.8% y-o-y in July–September, it remained above the 2017 government’s target of ‘around +6.5%.’ Xi Jinping unveiled his ‘Thought on Socialism with Chinese Characteristics for a New Era’ at the 19th National Congress of the Communist Party of China. In his report, Xi Jinping said that after the Party had finished building a moderately prosperous society in all respects by 2020, a two-step approach should be taken (the first step from 2020 to 2035 and the second step from 2035 onwards) to build China into a ‘great modern socialist country that is prosperous, strong, democratic, culturally advanced, harmonious, and beautiful’ by the middle of the century. 1. September’s economic indicators improved on the previous month ・ Growth slowed to +6.8% over July–September ・ Production, investment and consumption all accelerated ・ The floor space of residential buildings sold grew at a slower y-o-y pace for the first time since March 2015 ・ Imports and exports both improved ・ CPI growth slowed while PPI growth accelerated ・ Net new loans and total social financing both increased 2. Topics: The economic policy position revealed at the National Congress ・ A change in the ‘principal contradiction facing Chinese society’ ・ Building a ‘great modern socialist country’ by the middle of the century - 1 - 1. September’s economic indicators improved on the previous month ･Growth slowed to +6.8% over July–September On October 19, the National Bureau of Statistics (NBS) announced that China’s real GDP growth rate had hit +6.8% in July–September, down from the +6.9% recorded in April–June (from here on, all figures refer to ‘same- period previous-year’ growth unless otherwise specified). At +6.9%, the figure for January–September was unchanged from January–June. The economy grew by +1.7% on a quarter-on-quarter basis1 (Fig.1). A glance at contribution levels by demand item over January–September shows the contribution of final consumption expenditure hitting +4.5%Pt, up on January–June’s figure of +4.4%Pt. At +0.2%Pt, the contribution of net exports was down slightly from January–June’s figure of +0.3%Pt. At +2.3%Pt, the contribution of gross capital formation was unchanged on January–June (Fig.2). Fig. 1: GDP and major economic indicators Fig. 2: Breakdown of GDP by demand item (quarterly) (Y-o-y change, %) (Change in contribution from previous year, %) 45% 15% 15 12.7 14.3 12.2% 11.4 1.5 35% 10.2 10.0 1.9 9.7 10.6 10% 1.4 0.3 9.4 10 9.3 7.9 7.5% 6.3 25% 0.2 7.8 7.3 6.9 6.7% 6.9% 6.8% 3.8 5.5 8.1 7.1 4.4 6.9 6.8% 0.3 6.7 0.2 6.4% 6.2 0.3 7.0 5.1 1.3 15% 5% 3.4 4.3 2.9 2.3 2.3 5 2.8 3.4 6.2 6.4 5.9 5.3 5.3 4.3 5.3 5% 4.3 4.3 4.8 4.3 4.1 3.6 3.6 3.6 4.4 4.5 0% 0 -5% -0.4 -0.6 -0.1 -0.1 -1.3 -0.8 -0.5 -15% -5% -4.0 08 09 10 11 12 13 14 15 16 17 -5 Real GDP (right axis) Real fixed asset investment 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015 2003 2004 2010 2016 17(1-6) 17(1-9) Real retail sales of consumer goods (left axis) Real exports (left axis) 17(1-3) Real GDP q-o-q change (right axis) Final consumption expenditure Gross capital formation Net export GDP Note: The real RMB value of exports is indexed using the Source: National Bureau of Statistics of China, CEIC production price index (PPI) ; the real value of fixed asset investments is indexed using the price index of investment in fixed assets; and the real value of retail sales of consumer goods is indexed using the retail price index (RPI) . Source: National Bureau of Statistics of China, CEIC ･Production, investment and consumption all accelerated September’s economic indicators improved on the previous month. At +6.6%, September’s value-added industrial production figure was up on August’s +6.0% (the m-o-m figure was +0.6%) (Fig. 3). At +6.7%, the aggregate figure for January–September was up on 2016’s figure of +6.0%. The NBS pointed to three particular production trends in January–September: (1) growth in the equipment manufacturing industry and the hi-tech sector accelerated by 2.5%Pt and 2.8%Pt on the same period last year to hit 1 China Net, October 19, 2017, 新闻办就前三季度国民经济运行情况举行发布会 (The State Council Information Office Holds a Briefing on China’s Economic Performance in the Third Quarter) http://www.gov.cn/xinwen/2017-10/19/content_5232969.htm#allContent - 2 - +11.6% and +13.4%, respectively, with growth also up by +0.1%Pt and +0.3%Pt on January–June; (2) emerging- industry products grew at a fast clip; (3) mining and resource-intensive industry saw negative or slower growth2. Nominal fixed asset investment grew by +6.2%3 in September (January–September: +7.5%), up on August’s figure of +3.8% (the m-o-m figure was +0. 6%). Investment in real-estate development accelerated by a cumulative +8.1% until September, up on January–August’s figure of +7.9% (Fig. 4). At +15.8%, though, investment in infrastructure construction in January–September was at the same level as 2016’s figure of +15.8%, with manufacturing investment growth in January–September also unchanged on 2016 at +4.1%. The technology upgrading and manufacturing industry grew by +12.8% and the equipment manufacturing industry by +8.3%, but the energy and consumables manufacturing sector continued to contract at -1.9%4. Fig. 3: Value-added industrial production Fig. 4: Fixed asset investment by sector (Y-o-y change, %) (Nominal change from the previous year and change 24 in contribution from previous year, %) 30% 22 20 18 25% 16 14 12 20% 10 8 6 15% 4 2 0 10% -2 -4 -6 Total Chemicals 5% -8 Vehicles -10 Textiles Metalic materials -12 0% -14 9 11 3 5 7 9 11 3 5 7 9 11 3 5 7 9 14 15 16 17 -5% 2013/02 2013/06 2013/08 2013/10 2014/03 2014/05 2014/07 2014/11 2015/02 2015/04 2015/08 2015/10 2015/12 2016/05 2016/07 2016/09 2016/11 2017/02 2017/04 2017/08 2013/04 2013/12 2014/09 2015/06 2016/03 2017/06 Primary industry Mineral Manufacturing Infrastructure construction Real-estate Other Manufacturing Infrastructure construction Real-estate Note: The value-added industrial production amount. The Source: National Bureau of Statistics of China, CEIC figure for January shows the aggregate year-on-year change for the period January–February. Source: CEIC Nominal retail sales of consumer goods grew by +10.3% in September, up on the +10.1% recorded in August, with the real figure (discounting inflationary factors) also hitting +9.3%, up on August’s +8.9% (the m-o-m figure was +0. 9%) (Fig 5). At 10.4%, the cumulative figure for January–September was the same as 2016’s +10.4%. In 2 NBS, October 20, 2017, 文兼武:工业生产稳定增长 质量效益明显提高 (Wen Jianwu: Industrial production grew stably with noteworthy improvements in quality and efficiency). Wen Jianwu is the Director-General of the NBS’s Department of Energy Statistics. Examples of (2) emerging- industry products: lithium ion batteries (+36.5%), photovoltaic cells (+24.6%), private drones (+102.8%), IC (+22.1%), industrial robots (+69.4%), urban rail vehicles (+45.5%), and new-energy vehicles (+30.8%). As for (3), mining fell by -1.6% and resource-intensive industries grew by +3.1% (y- o-y rate of change). http://www.stats.gov.cn/tjsj/sjjd/201710/t20171020_1544402.html 3 Calculated by the author from the cumulative data. 4 NBS, October 20, 2017: 赵培亚:上半年固定资产投资平稳增长 结构更趋优化 (Zhao Peiya: Fixed asset investment grew in an even more stable manner in the first half year; structure is more improved). Zhao Peiya is an inspector with Department of Investment of the NBS http://www.stats.gov.cn/tjsj/sjjd/201710/t20171020_1544403.html - 3 - January–September internet retail sales of goods and services grew by 34.2% to hit RMB 4,878.7 billion (goods: RMB 3,682.6 billion; services: RMB 1,196.1 billion), with net shopping accounting for 18.5% of total retail sales of consumer goods (RMB 26,317.8 billion). Goods related to ‘consumption upgrading’ grew at a fast clip, up on the same period last year (education and entertainment goods (+17.4%), cultural and office appliances (+9.9%), home electric appliances and audio equipment (+10.1%), and cosmetics products, (+12.1%) for example)5. 2.709 million new vehicles were sold in September (+5.7%), an improvement on August’s figure of 2.186 million (+5.6%) (Fig. 6). The cumulative figure for January–September was 20.22 million (+4.8%), with growth slowing on 2016’s figure of 27.939 million (+13.7%). Sales had been boosted by a tax break on purchases of small vehicles, instituted in October 2015.
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