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China Economic Quarterly Q3 2017
Overall 2017 economy likely to outperform market expectations, despite moderately slower growth in third quarter
November 2017
Major economic indicators p1/Policy updates p10 /Hot topic analysis p13
www.pwchk.com/ceq
ContentI. Major economic indicators 1
II. Policy updates
The 19th Party Congress
Encouraging entrepreneurship in China
10
10
12
III. Hot topic analysis
How Fintech is Shaping China’s Financial Services
A Chinese perspective on rising commodity prices
13
13
18
China’s GDP growth for the third
quarter has slowed down to 6.8%, 0.1
percentage points less than the previous
two quarters of the year. Thanks to the
strong contribution from the service
sectors, total GDP for the first three
quarters together increased to 59.33
trillion yuan with 6.9% growth rate. As a
result, we expect that the economic
growth rate in 2017 would demonstrate
a better performance than that of 2016,
and beat the market expectation of 6.7%,
as forecasted by the International
Monetary Fund (IMF) — 6.8% for 2017
and 6.5% for 2018.
In spite of the gentler growth during the
third quarter, China has contributed
34.6% in growth to the world economy
in 2017, according to IMF. Meanwhile, it
is worth noting that the World Bank also
upgraded its forecast for the Chinese
economy for this year and the next.
China’s strong growth resonates well with
the new trend of economic rebound of
major emerging markets (BRICS), which
all grew for the first time in three years,
thanks to their favourable government
policies and a rise in gains for energy
and metal commodities in 2017.
Quarterly GDP values and quarterly and annual GDP growth rate
Major economic indicators
I
PwC 1
1.70%
1.80%
1.80%
1.80%
2.00%
1.70%
1.80%
1.50%
1.30%
1.90%
1.80%
1.70%
1.30%
1.70%
1.70%
7.30%
6.90%6.70%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
0.00
5.00
10.00
15.00
20.00
25.00
Quarterly GDP value Quarterly growth Annual GDP growth
GD
P (
Trilli
ons o
f R
MB
)
2 China Economic Quarterly Q3 2017
12.0
1%
11.2
9%
11.2
1%
11.2
5%
10.9
6%
10.8
5%
10.6
7%
10.2
4%
9.7
5%
9.0
9%
47.1
2%
45.9
0%
46.0
4%
46.1
7%
44.9
1%
43.6
5%
42.8
6%
40.5
6%
39.6
6%
40.1
9%
40.8
7%
42.8
1%
42.7
5%
42.5
9%
44.1
3%
45.4
9%
46.4
7%
49.2
1%
50.6
0%
50.7
3%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
primary secondary services
Perc
enta
ge
GDP composition
For the first three quarters, the output of
primary, secondary and tertiary
industry was 4.12, 23.81, and 31.40
trillion yuan respectively. The tertiary
industry or services, accounting for
52.9% of total GDP, grew by 7.8% year-
on-year, which was the highest growth
rate relative to other segments.
More specifically for the secondary
industry, manufacturing and utilities
(electricity, water, gas supply and etc.)
went up by 7.3% and 8.4%, respectively,
during the last three quarters in 2017.
These sectors performed much better
than mining, which continued to have a
negative growth.
Fixed Asset Investment: Accumulated Growth
Total fixed asset investment reached
45.85 trillion yuan and expanded 7.5%
year-on-year in the first three quarters.
The overall growth has declined by 0.7%
compared to the same period last year.
State sector investment rose by 11%
year-on-year while private investment,
accounting for 60.5% of total
investment, remained low, increasing by
only 6% year-on-year, relatively better
than 3.2% in 2016. How to provide a
better business environment and
encourage more private investment
remains a big challenge for the Chinese
economy.
From January to September, industrial
investment went up merely by 3.3%
year-on-year to 16.95 trillion yuan, of
which manufacturing investment
increased by 4.2% to 14.10 trillion yuan.
On the other hand, fixed asset
investment in service sectors,
accounting for 59% (27.18 trillion yuan)
of the total investment, rose by 10.5%
year-on-year, while infrastructure
investment went up by 19.8% to 9.97
trillion yuan during the first nine
months of 2017. High-tech
manufacturing, equipment
manufacturing and technological
upgrading recorded high growth, while
investment into high energy-intensive
industries fell by 1.9% from last year.
13.50%
11.40%
10.30%10.00%
10.70%
9.00%
8.20% 8.10%
9.20%8.60%
7.50%
Perc
enta
ge
PwC 3
Growth rates in real estate
4 China Economic Quarterly Q3 2017
-33.8%-33.1%
-31.7%
-19.4%
-11.7%
-6.5%-5.9%
-3.0%
-7.8% -8.5%-6.1% -5.5%
-4.3% -3.4%
6.2% 5.7%
8.1%
5.3%
8.8%
11.1%10.1%
12.2%
1.3%
2.2% 2.6%
-1.0%
14.7%16.8%16.8%
15.6%15.3%14.8%15.5%15.5%15.0%15.2%
7.0%
11.5%11.4%9.9%
11.2%
9.7% 9.0%
8.0%2.0%
1.3% 1.0%
3.0%
6.2% 7.2% 7.0% 6.1% 5.3% 5.4% 5.8% 6.6% 6.5%6.9%
8.9%
9.1%
9.3%
8.8% 8.5% 7.9% 7.9%
8.1%
-40.0%
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Growth rate of land purchased Growth rate of resources of funds Growth rate of investment
The overall real estate market in the
first three quarters remained stable, with
investment growing by 8.1%
year-on-year to 8.06 trillion yuan, 2.3%
higher than a year ago. Investment in
residential building, accounting for
68.3% of total real estate investment,
stood at 5.5 trillion yuan, up by 10.4%
from last year. In September, floor space
sold and sales volume of the commercial
buildings went up by 10.3% and 14.6%,
and residential housing sales rose by
11.4% from last year.
As the national and local governments
are stepping up their restrictive policies
to further curb the speculation, property
sales might decrease in the fourth quarter
and the next year.
In terms of sources of funds, there were
funds worth 11.31 trillion yuan available
from January to September, of which
domestic loans account for 17%, growing
by 19.5%; self-financing constitutes
32.3% (3.65 trillion) of all funds,
declining by 0.3%; other funds including
deposit and advance payment, personal
mortgage loans (5.75 trillion yuan,)
account for 51%, growing by 10.4%. As
regulation and control over real estate
keeps getting tighter, sources of funds
might become a challenge for many
developers in the fourth quarter and the
year 2018.
Growth rate of land purchased reached
12.2% in the first three quarters, with
space of land purchased stood at 1.67
trillion square metres.
Purchasing Managers’ Index
PwC 5
53.8%53.4%
54.4%
53.8% 53.7% 53.7%
54.5%
55.1%54.9%
55.4%
50.2%49.8% 49.7%
50.2%50.0%
50.4%
51.4%51.8% 51.7%
52.4%
46.0%
48.0%
50.0%
52.0%
54.0%
56.0%
Perc
enta
ge
Non-manufacturing Manufacturing 50% breaking point
China’s Purchasing Managers’ Index
(PMI) for manufacturing sector in the
past three months has become even
stronger, with September hitting a new
high of 52.4% since May 2012.
Production index and new order index
stood at 54.7% and 54.8% respectively,
both at high levels in recent years. A
strong manufacturing PMI indicates
steady growth and prospects for the
sector. Thanks to the global economic
upturn and positive outlook of China’s
economy, manufacturing sector is likely
to keep expanding in 2018.
Non-manufacturing PMI remained at
high level, with business activity index
reaching 55.4% in September, the
highest level since June 2014. With
manufacturing production gathering
pace, production related services
experienced rapid growth, with business
activity index reaching 59.7% in
September, 5.1% higher than last month.
PMI of wholesale, telecommunication,
internet, software and IT, financial
services, insurance, capital market
services surged to high level of over 60%
in September. Construction industry
returned to booming period, with
business activity index reaching 61.1% in
September, 3.1% higher than in August.
6 China Economic Quarterly Q3 2017
Growth of Industrial Added Values (for companies over certain scales)
6.80%
5.70%5.90%
6.80%
6.20% 6.10% 6.00%
7.60% 7.60%
6.60%
Perc
enta
ge
The growth of Industrial Added
Values (for companies over certain
scales) went up by 6.7% year-on-year in
the first three quarters, 0.7% higher than
the same period last year.
By sectors, manufacturing went up by
7.3% year-on-year, utilities sector went
up by 8.4%, and mining sector fell by
1.6% year-on-year. Furthermore,
industrial added values of
manufacturing of equipment, computer,
telecom and automobile grew by over
10% in September.
In the first three quarters, profits of
industrial enterprises over certain
scales rose by 22.8% compared to same
period last year. The mining sector led
the growth in profits, jumping by 4.7
times year-on-year, profits for
manufacturing grew by 19.6% year-on-
year, while profits for power, heat, gas
and water declined by 18.3% over the
same period last year. We expect the
growth of industrial added values to stay
bullish in 2018.
Total retail sales of consumer goods
reached 26.32 trillion yuan and went up
by 10.4% in the first three quarters.
Consumption continued to be the largest
driver of economic growth, contributing
to 64.5% to China’s GDP in the first
three quarters of 2017.
Catering consumption (2.84 trillion
yuan) grew by 11% year-on-year from
January to September, while the goods
consumption (23.48 trillion yuan) went
up by 10.3% year-on-year. Among goods
consumption, sale of sports and
recreational articles increased by 17.4%,
cosmetics up by 12.1% and construction
and decoration materials grew by 12.6%.
In addition, China’s online sales reached
4.88 trillion yuan in the first three
quarters, 34.2% higher than the same
period last year. Among them, sales of
material goods, accounting for 14% of
total retail sales, stood at 3.68 trillion
yuan, up by 29.1%, while sales of non-
material goods reached 1.2 trillion yuan,
increasing by 52.8% year-on-year.
Retail Sales of Consumer Goods: Accumulated Growth Rate
PwC 7
10.56%
10.41%
10.50%
10.70%
10.30% 10.30%
10.40% 10.40%
10.00%
10.40% 10.40%
Perc
enta
ge
Thanks to the moderate recovery of
global economy and fairly strong
domestic demand, China’s imports
and exports had the best performance
among all major economic indicators.
The total trade value registered at 20.29
trillion yuan in the first nine months, up
by 16.6% year-on-year. Among them,
exports went up by 12.4% year-on-year
to 11.2 trillion yuan, and imports grew
by 22.3% year-on-year to 9.13 trillion
yuan, with a trade surplus of 2.03
trillion yuan. Machinery products
continued to dominate China’s exports
(accounting for 57.5%), growing by 13%
year-on-year in the first three quarters.
Hiking commodity prices was a key
reason for the rising total trade values.
For instance, during the first three
quarters, import prices of iron ore,
crude oil, copper and coal went up by
38.4%, 33%, 29.2%, and 75.4%
respectively. The rise in commodity
prices increased import value by more
than 10% and contributed 52.5% to
imports growth.
For the fourth quarter of this year and
2018, we expect trade would continue to
grow at a higher pace than overall GDP,
as the global market improves further.
8 China Economic Quarterly Q3 2017
¥100
¥200
¥300
¥400
¥500
¥600
¥700
¥800
¥900
¥1,000
¥1,100
¥1,200
-25.00%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Net Export (RMB billion) Export Growth Import Growth