China's manufacturing activity expanded in October after its contraction for the 11th consecutive month in September. If continued in the coming months, this would end decelerating economic growth in China, given the share and importance of the industrial sectors in this economy. The annualized GDP growth rate for 3Q this year has been around 8.4% (China's real GDP grew by 7.4% year-on-year in 3Q12), which is higher than the GDP growth rates for last three quarters. A robust rebound in economic growth in China would ease economic expansion in other emerging economies, particularly emerging Asia with strong trade and financial links with China.
Since inflation remains subdued (consumer prices rose by only 1.9% year-on-year in September, compared with 2% in August, according to CNBS on 15 October; meanwhile, producer prices continued to decline, dropping by 3%), a more expansionary monetary policy to stimulate growth cannot be ruled out. On the other hand, strong fundamentals in the economy, including a low budget deficit and a relatively small share of public debt to GDP, would allow for a more expansionary fiscal stance to boost economic activities if required.
Amid growing export orders (China’s exports grew by 9.9% year-on-year in September, with the country’s trade surplus in the month reaching $27.7 bn on 14 October), domestic demand also remains very strong, following 13% growth in private consumption, on an annual basis in October. It is also noted that the upward trend in real estate prices in recent months would increase investment in the construction sector, boosting activities in one of most important sectors of the economy.
It is worth noting that, speaking to several thousand current and retired Communist party officials in the Great Hall of the People on 8 October, the President of China, Mr. Hu, who, along with Premier Wen Jiabao, has steered China for the past decade, unveiled economic targets, saying the government would strive to double rural and urban incomes by the end of 2020. This means an annual growth rate of 9% on average in aggregate income for the next eight years to 2020.