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.