China economy continues strong growth trajectory in October, but imbalances remain

Finbarr Bermingham
·5-min read

China’s economy expanded strongly in October, as the recovery in consumption continued to gather pace, data from the National Bureau of Statistics (NBS) released on Monday showed.

But imbalances remained, with the industrial and investment-led parts of the economy outperforming analysts’ expectations, while consumption lagged behind.

Industrial production, a gauge of manufacturing, mining and utilities output in the Chinese economy, grew by 6.9 per cent from a year earlier, the same level of growth as in September and faster than expected. A poll of analysts conducted by Bloomberg had predicted 6.7 per cent growth.

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Retail sales, a key indicator of consumption trends in the world’s most populous nation, grew by 4.3 per cent from a year earlier, marking the third successive month of expansion. This was up from 3.3 per cent growth in September, but missed expectations. Analysts had forecast 5.0 per cent growth.

Fixed asset investment grew by 1.8 per cent over the first 10 months of the year, with the pace picking up from 0.8 per cent in the first nine months. This was ahead of analysts’ expectations of 1.6 per cent growth. This was powered by a huge uptick in investment in the primary industries – such as mining, farming, quarrying – and hi-tech sectors.

The surveyed jobless rate, an imperfect measurement of unemployment in China which does not include figures for the tens of millions of migrant workers that work across the country, was 5.3 per cent in October, down from 5.4 per cent in September.

At a press conference in Beijing on Monday, Fu Linghui, spokesman for the NBS, said that China had created 10.09 million jobs over the first 10 months of the year, “meeting the target for the whole year ahead of schedule”.

China had struggled to kick-start the retail economy after the coronavirus lockdown at the start of 2020, with export-led industries, particularly manufacturing, recovering much more quickly.

The industrial economy continues to expand at a faster pace, but the quickening pace of retail sales’ growth suggests consumption is gaining momentum. The catering sector reported positive year-on-year monthly growth for the first time this year in October, the NBS said, expanding slightly by 0.8 per cent.

Within industrial production, manufacturing grew by 7.5 per cent in October while mining output expanded by 3.5 per cent year on year. Within manufacturing, production of new energy vehicles soared 94.1 per cent year on year, while output of microcomputers and integrated circuits grew by 28.0 and 20.4 per cent year on year respectively, as China channelled efforts into its domestic technology sector.

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Survey data had signalled an uptick in economic performance, with Caixin purchasing managers’ indices (PMIs) for September better than expected, while the official PMIs conducted by the government showed manufacturing growth for the eighth month in a row.

But the imbalances in China’s economic recovery had also been telegraphed by October’s trade data, released last week, with exports soaring ahead of expectations, growing by 13.2 per cent year on year, but imports disappointing, with 4.7 per cent growth in October much lower than expected.

Analysts pointed to the wearing off of the front-loading effect on semiconductors the previous month, ahead of potential new US technology-based sanctions, as well as the seasonal effects from China’s “golden week” holiday.

“Based on various factors, the current monthly economic data may have already peaked [for the year],” wrote Liang Zhonghua, chief macroeconomic analyst at the Research Institute of Zhongtai Securities in a note.

China may expect a longer-term trade boost after signing the Regional Comprehensive Economic Partnership (RCEP) on Sunday, with 14 other Asia-Pacific countries.

Cooling consumer inflation last month, as well as weaker deflation for producers, signalled further stabilisation in China’s economy in October.

October’s data dump provides the first snapshot of the economy since the 14th Five-Year Plan was unveiled on November 3. The plan prioritised local innovation and improving domestic demand. Chinese President Xi Jinping’s dual circulation strategy is likely to form a crucial part of this, given its focus on domestic consumption and reducing dependence on overseas markets.

We maintain our real growth forecast of 5.7 per cent year on year for the fourth quarter, up from 4.9 per cent in [quarter three], resulting in annual growth of 2.1 per cent this year

Nomura analysts

The data suggested that China’s growth momentum will continue for the rest of the year and into next, with the economy having grown by 4.9 per cent in the third quarter.

The world’s biggest free trade deal is viewed as relatively modest in terms of the trade liberalisation measures it contains, but nonetheless encompasses close to one-third of the world’s population and global economy. But it is unlikely to be ratified until the middle of next year at the earliest.

“The economic growth rate in the fourth quarter is likely to be faster than the third quarter,” said Fu, the NBS spokesman.

Analysts at Nomura said that Monday’s data showed that China’s economic recovery was “on track”.

“We maintain our real growth forecast of 5.7 per cent year on year for the fourth quarter, up from 4.9 per cent in [quarter three], resulting in annual growth of 2.1 per cent this year,” they wrote.

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