Head of China Research - Forsyth Barr Asia, Forsyth Barr Asia

David Millhouse

Head of China Research - Forsyth Barr Asia

Forsyth Barr Asia

Macroeconomics

<p>China GDP came in at 7%, inline with consensus, but ahead of what we thought it would (in particular in light of the fact retail sales, industrial output and fixed asset investment data released all missed expectations, and we already had weak export numbers). Services have obviously recorded strong growth, but we thought this would be more than offset by manufacturing, agricultural, infrastructure and export weakness. Corporate and industry feedback we have received consistently throughout the quarter continued to point at an extremely weak economic picture. We believe the market (and the government) is still too sanguine about the structural negatives which are currently hindering economic momentum, namely severe overcapacity in several sectors, inefficient capital allocation, high debt levels of corporates and local governments, a slowing property market, and an uncertain environment for exports. We see accelerated near term easing in multiple channels.</p>

China GDP came in at 7%, inline with consensus, but ahead of what we thought it would (in particular in light of the fact retail sales, industrial output and fixed asset investment data released all missed expectations, and we already had weak export numbers). Services have obviously recorded strong growth, but we thought this would be more than offset by manufacturing, agricultural, infrastructure and export weakness. Corporate and industry feedback we have received consistently throughout the quarter continued to point at an extremely weak economic picture. We believe the market (and the government) is still too sanguine about the structural negatives which are currently hindering economic momentum, namely severe overcapacity in several sectors, inefficient capital allocation, high debt levels of corporates and local governments, a slowing property market, and an uncertain environment for exports. We see accelerated near term easing in multiple channels.

CHINA MACRO: GDP headline came in at 7%, but more loosening is needed near term.