China Economic Focus: October 2013

Overview

  • China’s economy grew by 7.8 percent (year-on-year) in the third quarter of 2013, up from 7.5 percent in the previous quarter. This was in line with forecasts, which have been steadily revised up since August, following a summer of quite bearish commentary. The economy has grown by 7.7 percent over the first 3 quarters of 2013.
  • Encouragingly, the labour market appears to be strengthening, with stronger urban and rural income growth and a rising ratio of job applicants to vacancies. Moreover, growth in all sectors of the economy accelerated but the services sector continues to outpace manufacturing (and agriculture). Finally, while overall retail sales were broadly stable, auto sales rose 13.2 percent year-on-year, up from 7 percent last month and the highest growth rate since September 2011.
  • Less encouragingly, the latest data illustrate how investment has resumed its role as the predominant driver of Chinese growth, contributing 4.3 percentage points to overall growth so far, relative to 3.5 percentage points from consumption (by contrast, last year consumption was the main contributor to growth). And exports unexpectedly fell last month, illustrating on-going weakness in external demand.
  • Inflation last month increased to 3.2 percent, driven largely by rising vegetable prices. Inflation is now at its highest level since February 2013, though importantly it remains below the 3.5 percent target. Last month bank loans increased faster than forecasted but Total Social Financing, a broader measure of credit, decreased slightly from the previous month. Other important data points, including industrial production and fixed investment, were stable or fell slightly.
  • Chinese internal policymaking has been quiet this month, ahead of the November 3rd Plenum and subsequent Central Economic Work Conference. UK-Chinese economic relations received a major boost during the Chancellor of the Exchequer’s visit to China between 13-18 October, with new announcements made about civil nuclear collaboration, the Shanghai Free Trade Zone, inward investment, science and innovation and London as an RMB centre (see here for further information).

Click here for the full China Economic Focus October 2013.