China Economic Growth Expected to Slow Down

China's economic growth is expected to cool down due to factors concerning its war on pollution, as well as efforts to curb its risky debt addiction.

The world’s second largest economy is expected to release data over the next few weeks regarding its performance, which is anticipated to have cooled further in October as policy makers pursue efforts to reduce financial risks and aim at fostering long term sustainable growth, following a robust growth last quarter.

China’s Communist Party Congress, which has recently been concluded and was led by Chinese President Xi Jinping, strengthened this strategy. Xi has set targeted policies toward the emphasis of quality over quantity in an attempt to boost economic growth, while he also pledged to come victorious in the war on pollution.

Authorities have decided to intensify its curbing of China’s years-long debt addiction, while it continues to splurge on infrastructure projects. It has also kept fiscal policies relatively loose, as it stoked strong growth throughout the year.

“We expect growth to slow in October,” said Wendy Chen, who is an economist at Nomura in Shanghai.

Chen said that she expects the slowdown to extend, though gradually, through the end of the current year as efforts to curb pollution affect factory outputs. Additionally, weaker property and infrastructure spending are cooling investment growth.

This was quite proven by a news agency, which conducted a poll of over 30 economists. It showed that the growth in factory output has slowed to 6.3 percent year-on-year in October from 6.6 percent in September.

However, the figures still defied much of the market’s expectation of a sharper slowdown this year, as the construction boom that the government has backed pushed cement, steel, and glass prices up, boosting overall economic output.

Moreover, the October data is still expected to show that Beijing will easily hit its 6.5 percent growth target for 2017, as increasing profits witness factories expanding output, despite being at a slower pace. Meanwhile, resilient customer spending supports the broad activities.

War on Pollution

According to analysts, policy makers could be faced with crucial balancing acts over the next year. They target high-risk lending to companies as well as the property sector, all the while taking long-overdue steps to curb factories that contribute to pollution.

China's war on pollution has affected different firms that have been trying to keep up with stricter policies.

As for winter’s anti-pollution measures, there are mixed signals given as to how strict they will be.

On Tuesday, a government official said that pollution measures in October have hurt output of some firms, which was also indicated in an official survey of the sector. Imports may have risen 16.0 percent, resulting to a trade surplus of $39.5 billion.

Loan Growth

People’s Bank of China Governor Zhou Xiaochuan issued comments over the weekend and said that China must prevent “black swan” event, which pertains to major, unforeseen occurrences. He also warned about the risk from high leverage in the country’s financial system.

S&P Global Ratings has downgraded China’s sovereign credit rating in September, prompted by the growing worries over the Asian giant’s rapid debt build-up.

Meanwhile, the country has largely put brakes on a buildup in corporate debt this year. Regulators have also focused on the risks from disguised property debts, with the investors looking for ways around the policy.

Economists anticipate a drop in the new loans in October to a one-year low of 780 billion yuan ($117.59 billion) while banks are restricting mortgage lending. Corporates continue to refuse bank loans.

The producer price index is expected to have dipped 6.6 percent in October on-year, down from 6.9 percent in September when prices soared on concerns regarding a shortage in supply caused by winter production restrictions.

The consumer price index climbed 1.8 percent on-year in October, compared with 1.6 percent in September.

The country is set to announce forex reserves data on November 7, to be followed by trade and inflation data on November 8 and November 9 respectively. Loan and money data is set to be reported anytime from November 10 to November 15.

Trade12 is a community of brokers and investors serving the quality service to all present and potential clients. Join our community. Trade12 awaits you!