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China’s GDP allows room for stimulus waiting game

For any major economy, 5% growth ought to be respectable. Yet anxiety over the attainability of that official target this year is one reason China’s policymakers have faced growing calls from global stakeholders for more stimulus. Any urgency to unleash massive support however was greatly diminished on Wednesday as the world’s second-biggest economy expanded a better-than-expected 4.9% in the third quarter on a year-on-year basis.

There are growing signs of stability after months of slowdown. The country’s GDP has grown 5.2% in the first nine months of this year. Retail sales remain a bright spot, rising 5.5% in September. Services are also doing well, helped by a 17.7% increase in the hotel and catering sector as Chinese people travel en masse. Industrial output rose faster than expected, too, though it was almost unchanged from August, and the unemployment rate in urban regions fell to 5% in September from 5.2% a month earlier. That all tentatively suggests Beijing’s cautious efforts so far to prop up activity are working.

Big pockets of weakness remain. The debt crisis among property developers is weighing on a sector that drives a quarter of output. Investment in property development dropped 9.1% so far this year, dragging down growth in fixed asset investment to merely 3.1% during the period. The industry’s problems have added to the pressure on indebted local governments which rely on land sales. Reuters reported this week that Beijing has told state-owned banks to roll over existing local government debt and cut rates on outstanding loans to their financing vehicles. These moves will alleviate pressure on municipalities and potentially put them in a stronger position to spur their activity in their districts.

Aside from not-terrible growth figures, there are further reasons to refrain from taking big decisions. A key meeting of the central committee of top party members, known as the Third Plenum, is supposed to set the tone for important economic policies, but there is no indication yet on when that will happen this year. It’s unclear, too, how much a war in the Middle East could hurt exports, which declined by a less-than-expected 6.2% in September. China has almost no inflation and this means ample room for more monetary policy action if needed. For now, it can probably do without a big bang.
Source: Reuters (Editing by Una Galani and Thomas Shum)

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