Five things to watch for as China reports third-quarter GDP

China’s National Bureau of Statistics will reveal if the country’s economic rebound from the coronavirus pandemic remains on track when it releases its estimate for third-quarter gross domestic product growth on Monday.

The IMF revised upwards its full-year projection for Chinese growth to 1.9 per cent this week. By comparison, the IMF expects the US and Indian economies to contract 4.3 per cent and 10.3 per cent this year respectively.

Here are five things to look out for as President Xi Jinping’s administration attempts to complete an economic recovery that few people thought possible at the beginning of the year.

How high can quarterly growth go?

After falling 6.8 per cent year on year in the first quarter — the first such contraction in more than 40 years — China’s economy rebounded to grow 3.2 per cent in the second quarter.

Larry Hu, chief China economist at Macquarie, projects third and fourth-quarter GDP growth of about 5 per cent and 5.5 per cent respectively. He expects growth could surge as high as 15 per cent over the first three months of 2021 because of the low base effect of this year’s first-quarter crash.

Will Beijing continue to rein in real estate investment?

In 2017, Mr Xi said that “homes are for living in, not speculating on”, signalling his administration’s determination to rein in soaring property prices, especially in China’s largest cities.

But the property sector remains a crucial growth engine for the world’s second-largest economy. As Mr Xi’s economic team, led by Vice-Premier Liu He, presses ahead with its efforts to restrict credit flows to developers, it must judge the economic impact on everything from industrial demand to regional government finances, given the importance of land sales to most local governments.

A dramatic illustration of this trade-off occurred last month when investors were spooked by reports that one of the country’s largest developers had approached the Guangdong provincial government for a bailout. China Evergrande, with debts of $120bn, denied the speculation but on Wednesday raised only about half of the $1bn it was aiming for in a share placement, triggering another sell-off of its Hong Kong-listed shares.

Can consumers and infrastructure investment come to the rescue?

After seven consecutive months of year-on-year falls in retail spending, the indicator finally turned positive in August, although it grew by just 0.5 per cent compared with the same month last year.

If consumption can rebound as strongly as exports have over recent months, the Chinese economy will be well placed to continue its recovery into next year. The IMF is projecting that China’s economy will expand more than 8 per cent in 2021.

Will fixed-asset investment return to positive territory?

Fixed-asset investment fell a record 24.5 per cent in the first two months of the year and continued to decline through August. But Monday’s figures are expected to show that it finally turned positive in September.

A People’s Bank of China official said on Wednesday that the central bank would support a temporary increase in overall debt levels, which typically fuel infrastructure investment. Figures released this week showed that China’s broadest measure of credit grew at its fastest rate in two years last month. Outstanding bank loans in September also rose more strongly than expected at 13 per cent year on year.

Can China’s booming export sector continue its strong run?

China’s ability to keep coronavirus at bay has been a boon for the country’s exporters. With factories, trucking companies and ports able to operate as normal, the country is hoovering up global demand for everything from consumer electronics sought by homebound workers to personal protective equipment. In April, China accounted for 18 per cent of total global exports.

The surge continued last month, as the country’s September exports increased 9.9 year on year.

A strengthening renminbi, however, could put a brake on the export boom. After flirting with $7.20 in late May, China’s currency has raced back up to $6.70 — a gain of 7 per cent.

In response, China’s central bank has made it less expensive for currency traders to bet against the renminbi — something the PBoC frequently does when it is concerned the currency has risen too far too fast.

The headline of this article has been subject to a correction since first publication.

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