China: CNY backdrop supported by growth momentum – MUFG

The sustainability of support for the Chinese Yuan hinges on the composition of China’s growth, according to MUFG’s Michael Wan. While stronger production keeps the annual growth target within reach, domestic demand and property investment remain uneven. Wan notes that Q3 GDP growth strengthened to 4.5% year-on-year, marginally exceeding consensus, as industrial production picked up in September and the contraction in fixed asset investment narrowed.

Can stronger growth overcome uneven demand?

"China’s economy gained momentum in Q3, led by stronger industrial production, although domestic demand remained uneven. GDP growth rose to 4.5%yoy from 4.3%yoy, slightly above consensus of 4.4%yoy, leaving growth at 4.6%yoy YTD. September industrial production accelerated to 5.5%yoy, while the monthly contraction in fixed asset investment narrowed after four months of double-digit declines."

"Stronger production has yet to translate into a convincing recovery in household demand or property investment. Retail sales improved to 1.1%yoy from 0.4%yoy, greatly exceeding the 0.5%yoy estimate, with it benefiting from the Mid-Autumn Festival falling in September."

"The improvement in production and narrower monthly investment contraction helped keep the annual GDP target within reach. For CNY, firmer activity provides a more supportive domestic backdrop, although the composition of growth remains important in assessing whether this improvement can be sustained."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)