China’s economy finally picks up the pace and should hit 7.5% annual growth target

18th October 2013

China’s economy has gone up a gear and actually accelerated during the July-August period, its first rise in three quarters writes Philip Scott.

On the back of stronger industrial numbers and retail sales, the globe’s second-largest economy rose by 7.8% from a year earlier, and was 0.3% ahead of the previous three-month period.

Following almost a decade of robust expansion, the economic behemoth pulled back recently as the heavily export dependent nation was hit by the problems in the likes of the Eurozone, where demand for its goods slackened.

Its slowdown has had a serious knock on impact on the progress of emerging markets in general, where investors have endured a steep fall in their returns compared to just a few years earlier.

Speaking to the BBC, Song Seng Wun, a senior economist with CIMB Research says: “This is an indication that China’s economic growth is holding up in a range which is within the comfort zone of both the Chinese policymakers as well as global watchers.”

Craig Botham, Emerging Markets Economist, Schroders adds: “China’s third quarter GDP growth rebounded to 7.8% year-on-year, having decelerated to 7.5% year-on-year in the last quarter. The figure was in line with consensus expectations and reflects the mini-stimulus and fine-tuning measures enacted by Beijing in response to the second quarter slowdown. Equity investors should be cheered that nominal growth recovered more strongly, climbing from 8% year-on-year to 10.4% in the third quarter. This is indicative of growing (but not concerning) inflationary pressure, and is a positive for earnings.

“Looking at a breakdown of the figures reveals that investment again took the dragon’s share of growth, contributing 4.3 percentage points on a year-to-date basis, up from 4.1 in the second quarter. While consumption also increased its contribution, to 3.5 percentage points from 3.4, it is clear that investment remains the main growth driver for now, despite talk of a reform of China’s growth model.

“On the downside, monthly activity data points to deceleration in the final quarter. Fixed asset investment, industrial production, retail sales and trade data releases have all been weaker in September than in August. Consequently, we expect a weaker GDP figure for the fourth quarter, but overall it is unlikely China will miss its 7.5% growth target this year.

“So, we’ve seen the Chinese dragon regain altitude, which will be welcome news for jittery investors, but we remain cautious about the outlook going into the fourth quarter and beyond. We look for a concerted move towards reform at November’s Plenum to keep China’s growth on a sustainable footing. Expect turbulence.”

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