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China Economy in November 2014

Source: OPEC 12/9/2014, Location: Asia

China’s 3Q14 GDP rose 7.3% y-o-y, down from 7.5% in the 2Q14, the lowest level since 2009. Third-quarter growth significantly benefitted from a positive net export contribution. In contrast, domestic demand remained soft. The slowing momentum is largely driven by continued deceleration in fixed asset investments (particularly in real estate) and overcapacity in heavy industries. There have also been some positive developments in the composition or “quality” of economic growth in the Chinese economy.

China's trade grew more strongly than expected in September, driven by stabilised domestic demand and strong exports to developed countries, particularly Hong Kong. According to data published on 13 October by China's General Administration of Customs, exports expanded by 15.3% y-o-y in September, compared with 9.4% in August. Imports were up 6.9% y-o-y, a sharp rebound from the 2.3% decline in August, ending two months of shrinkage. On this basis, China's trade surplus in September was $30.9 billion, down from a historical high of $49.8 billion in August. Exports were driven by demand from Hong Kong, with export growth rebounding to 33% in September, while growth of exports to the US, the EU and Association of Southeast Asian Nations (ASEAN) stayed above the 10% mark. The strong rebound in imports somewhat reflects stabilised domestic demand in the short-term, while the drop in trade surplus may reduce inflationary pressure on the domestic currency and increase the possibility for the central bank to further relax liquidity.

Sluggish investment in China has been an important factor. However, at the 15th Western China International Fair (WCIF) held in the Chengdu and Sichuan provinces, 1,067 investment projects worth CNY 805 billion ($132 billion) were signed, up 131% and 43%, respectively, compared with the previous year. The WCIF saw 8,981 companies from 76 countries and regions attend, both new records. Amid the signed projects, 1,014 are domestic while only 53 involve foreign investment. Sichuan could be the biggest winner of this WCIF, gaining 868 projects worth CNY 603 billion ($98 billion) in new investments, accounting for 74.9% of total signed investments. This year's WCIF was divided into two parts: one focused on industry and investment, and the other on consumption and trade cooperation. Local officials hope that with sluggish investment growth this year expected to continue in the coming quarters, WCIF will bring new opportunities for investment and trade to Western China.

China's central bank will provide around CNY 200 billion ($32 billion) in liquidity to smaller banks over a three-month window around year-end, according to a report by the National Business Daily. According to the report, based on comments from officials at the People's Bank of China, about 20 joint-stock banks recently received an invitation to apply for access loans, which will have a three-month duration. These possible short-term liquidity injections follow the development of a CNY 500 billion ($82 billion) standing lending facility extended to China's five largest banks in September.

China’s manufacturing PMI rose to 50.4 in the most recent reading for October, up from 50.2 in September and unchanged from the flash reading released earlier. Compared with the flash readings, new order and new export order sub-indices saw small downward revisions, but both remained in expansion territory. Meanwhile, employment and inventory sub-indices saw small upward revisions. Overall, the manufacturing sector continued to stabilize in October. The economy still shows clear signs of insufficient effective demand. Uncertainties remain, given the property downturn as well as the slow pace of global recovery, and further monetary and fiscal easing measures are expected in the months ahead. Expected GDP growth for 2014 remains unchanged from 7.4%, while the expectation for 2015 is 7.2%.

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