Production side of the real economy remained weak. High-frequency data showed the production remained weak despite of pro-growth policies. Coal consumption of six largest power generation groups showed expanded YoY decline, with decline in a single week standing above 10% and capacity utilization rate stabilized at a low level. Property demand rebounded again driven by loose policies and real estate sales growth YoY in 30 larger cities recovered above 10%. With continued introduction of real estate-friendly policies and raising stake of easing policies, demand for properties will continue to recover. Generally speaking, the real economy is still relatively weak, the foundation of both demand and supply is unsound, and more easing policies are needed for the economy continues to grow.
The bottom line of economic growth is becoming gradually clear, and the growth stabilization expectation rises. According to recent intensive statements of regulators, China will stick to the target of a doubling economical aggregate by 2020 that meets the requirement of a moderately prosperous society. Based on the target, annual average growth rate of the economy will be no less than 6.5% in the next five years. The around 7% economic growth in the first three quarters was mainly contributed by the finance sector, with the economic growth of other sectors excluding the finance sector being merely 6.3%. Due to base data effect that is to appear in the fourth quarter, economic growth of the finance sector will slump. To meet China’s goal, economic growth of non-finance sectors have to bottom out to ensure economic growth being above 7%. Given the current weak economic environment, there is a demand for more effective policies.
Both the supply and demand reforms will be launched and loose policy takes effect from all aspects. In the context of downward economic pressure, loose policy continue to promote demand to recover. The Export-Import Bank of China provided 500bn yuan line of credit for China Railway Corporation and the house provident fund has obtained the green light to invest in local government debts, both of which indicate the government is trying to direct excessive funds in the financial system into the real economy. Yet due to limited investment enthusiasm of the real economy, the pro-growth policies in the past few months were unable to bring stabilized economy. Hence the regulators, as working on growth stabilization policies, have started to launch the supply-side reform. At the 11th conference of the Central Leading Group on Financial and Economic Affairs, president Xi pointed out to strengthen the supply-side structural reform as moderately expanding total demand, and to enhance the quality and efficiency of the supply system. It is expected that reforms helping to enhance economic efficiency, such as population structure adjustment, citizenship of migrant workers and emerging industry support policies and reduction of administrative cost, will be promoted at an accelerated pace.
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