China grew steadily in November but prospect less optimistic - Natixis

Analysts at Natixis note that China’s consumption remained stable with a slight increase in consumer confidence but industry valued added and fixed asset investment continued to soften, growing only 6.1%YoY and 7.2%YoY, respectively.

Key Quotes

“Although the industrial sector improved profits (21.9%YoY growth) thanks to supportive producer prices, its lack of incentive to investment makes us less optimistic about the growth potential for 2018.”

“Property prices were quite calm across major cities towards the year-end. Authorities are speeding up the procedure to introduce a property tax but we do not expect the potential reform to have material impact on housing prices in the short term. More comprehensive macro-prudential measures and tighter liquidity condition will continue to cool the market.”

“On the external front, exports and imports both rebounded by growing 12.3%YoY and 17.7%YoY, respectively, as holiday consumption fuelled the demand. Looking ahead, the US tax reform would have only limited impact on capital moving from China to the US. China’s FDI actually surged in November, and the Ministry of Finance just announced a tax cut on foreign firms’ profits that are re-invested in designated sectors or areas.”

“The PBoC drained liquidity from the banking system (CNY-425.5bn) and nudged up the short-term rates in the past month. During the Central Economic Work Conference on December 20th, Chinese authorities reiterated that “prudent monetary policy should be kept neutral” and further pointed that monetary supply should be controlled. Thus, the trend of a decelerating M2 growth is expected to continue into 2018. While new bank loans and total social financing still surged in 2017, authorities are expected to tighten financial regulations and combat mounting leverage.”

“At the same Party conference, economic objectives were set for the next three years, with special attention to “the three tough battles against risks, poverty and pollution”. On this basis, we expect authorities to tolerate slower growth in the coming years when they step up efforts with deleveraging and cooling the property market. At the same time, financial risk and tax reform in the US could create headwinds for the Chinese economy in the upcoming years. All in all, we expect the economy to shift to a more sustainable growth path and the growth to slow slightly to 6.5% in 2018.”