New China data contains a mixed bag of risks

HONG KONG - China's GDP growth slowed to a post-global financial crisis low of 6.5% y/y in Q3, and is expected to moderate further in Q4, according to ANZ Bank's base scenario. China's GDP growth has tended to be weaker in Q3 in the past three years.

In a research note, ANZ says the 1.6% q/q growth registered in the quarter makes it the slowest Q3 since 2015, suggesting an actual decline in economic activity which cannot be explained by seasonality.

"Our current model suggests a further moderation in GDP growth to 1.4% q/q in Q4, which may translate into 6.3% y/y growth for the quarter," ANZ says.

"The weakness mainly came from the secondary industry, a trend we expect to extend into Q4.

"Although the US-China trade war has not yet dented China's exports in Q3 partly due to the front-loading of shipments, industrial production in China's manufacturing sector has deteriorated further, with growth easing to 5.8% y/y in September, the fifth consecutive month of slowdown."

As a result, ANZ says, secondary industry's GDP growth slowed to 5.3% y/y in Q3 from 6.0% in Q2.

"With the second round of US$200 billion US tariffs implemented since late September and as the front-loading effect fades, we expect China's export growth to trend lower in Q4, further trimming its contribution to overall GDP growth."

The report says an upside risk in Q4 could come from property investment, which has been holding up on the back of a rebound in China's credit impulse and infrastructure investment, which contracted less in September.

"Growth in property funding, which has a lead time of three to six months ahead of property investment, accelerated to 7.8% y/y ytd in September from 6.9% in August, the fastest since this year," ANZ says.

"As China's credit impulse rebounds following the RRR cuts, we expect property investment to stabilise at 10% y/y towards the end of 2018.

"The pace of contraction in infrastructure investment, which is a major factor weighing on overall fixed asset investment (FAI) this year, has slowed in September.

"We expect the recovery in infrastructure investment to continue for the rest of the year. Faster-than-expected growth in investment in coming months could pose upside risks to our Q4 GDP forecast, though."   www.live.anz.com (ATI).