MUFG’s Michael Wan notes China’s Q3 GDP growth firmed to 4.5% year-on-year, slightly above consensus, with September industrial production accelerating and fixed asset investment contractions narrowing. He highlights that stronger production keeps the annual growth target within reach but domestic demand and property investment remain uneven, which is crucial for assessing the sustainability of support for the Chinese Yuan.

Growth improves but demand uneven

"China’s economy gained momentum in Q3, led by stronger industrial production, although domestic demand remained uneven. GDP growth rose to 4.5%yoy from 4.3%yoy, slightly above consensus of 4.4%yoy, leaving growth at 4.6%yoy YTD. September industrial production accelerated to 5.5%yoy, while the monthly contraction in fixed asset investment narrowed after four months of double-digit declines."

"Stronger production has yet to translate into a convincing recovery in household demand or property investment. Retail sales improved to 1.1%yoy from 0.4%yoy, greatly exceeding the 0.5%yoy estimate, with it benefiting from the Mid-Autumn Festival falling in September."

"The improvement in production and narrower monthly investment contraction helped keep the annual GDP target within reach. For CNY, firmer activity provides a more supportive domestic backdrop, although the composition of growth remains important in assessing whether this improvement can be sustained."

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