Traders expecting resilient Chinese GDP

Published on 2017-07-21

Chinese exports will remain the backbone of growth in the world's second largest economy thanks to a gravity-defying property boom and higher government infrastructure spending.

China's second quarter GDP figures are due for release first thing Monday morning with economists expecting a resilient 6.8 per cent year-on-year read, above the official 6.5 per cent assumption.

Despite the notion that China's GDP print retains a lack of transparency, markets around the region are likely to stay buoyed, say traders, should the high frequency industrial production, retail sales and fixed asset investment numbers – also released on Monday – track positively alongside GDP.

"If global demand for Chinese goods stays elevated, that will offset the curbs on growth that property and debt that the government has implemented," said Tao Wang, chief China economist at UBS.

Data released last Thursday showed China's exports rose a stronger-than-expected 11.3 per cent in June from a year earlier and imports rose by 17.2 per cent in the year to June. The trade surplus widened from $US40.8 billion in May to $US42.8 billion in June.

The Chinese government has sought to dampen soaring property prices in recent months by rolling out a host of restrictive measures, indicating real estate is a major contributor to economic growth.

And it looks like the resulting cooling property sector is starting to flow through to economic growth, with fixed asset investment growth in May slowing more than expected.

But Commonwealth Bank economist John Peters expects Monday's fixed asset investment print to stay moderately supported, thanks to stabilising manufacturing investment.

Further to curtailing rampant property price growth, the government has cracked down on unscrupulous lending in a bid to combat an extraordinary debt load that has ballooned to 277 per cent of gross domestic product.

"It is therefore highly probable that authorities will continue to use the resources and policy tools at their disposal to ensure a positive economic outcome," Citibank analysts said over the weekend.

Central banks around the world are focused on the persistent low inflation, and the PBOC is no different, with CPI inflation printing 1.5 per cent in June, largely in line with market expectations.

But The People's Bank of China did not follow the United States in raising interest rates in June, which would further temper, despite capital flowing out of the country and instead has injected liquidity into the market to counter the prospect of a credit crunch.
Despite growing concerns about China's financial risks, Premier Li Keqiang said last month that the country could reach this year's economic growth targets.

Last quarter's growth momentum had continued into the current one, he said, noting that traditional economic indicators such as power generation and consumption, and new business orders had increased "significantly".