World Economy
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China Q3 GDP Growth Steady at 6.7 Percent

China’s economy has been expected to slow as the mainland transitions from manufacturing-led growth toward consumption
Despite the surge in property sales, overall housing inventory remains a major issue across China. A “nail house”, the last building  in the area, sits in the middle of a road under construction in Nanning, Guangxi Zhuang Autonomous Region.Despite the surge in property sales, overall housing inventory remains a major issue across China. A “nail house”, the last building  in the area, sits in the middle of a road under construction in Nanning, Guangxi Zhuang Autonomous Region.

China's economy has managed a curiously singular feat for any country: Growing a steady rate of 6.7% for the third quarter in a row.

"It's definitely unusual in an international context," noted Julian Evans-Pritchard, a China economist at Capital Economics on Wednesday, CNBC reported.

"There are almost no countries that have such stable GDP growth rates."

The GDP trifecta is the first since at least 1992 when Reuters began compiling data.

"It suggests quite significant smoothing of the data behind the scenes. Even by Chinese standards, this is quite rare," Evans-Pritchard said.

China's economic data routinely faces market scepticism over accuracy, so it's not terribly surprising that the release Wednesday of gross domestic product data showing the third quarter's economic growth kept an even keel for a third quarter–in line with forecasts and smack in the middle of the government's 6.5-7.0% target range–would also spur scrutiny.

Evans-Pritchard noted that the steady reports likely reflected that growth this year has stabilized somewhat in the world's second-largest economy.

He noted that the slowdown earlier this year likely wasn't fully reflected in the official figures.

"There's incentive for the statistics bureau to take advantage of the underlying recovery to bring the official figures closer in line with reality," he said. "It's a question of reversing the previous distortions."

In a note on Wednesday, Evans-Pritchard lowered his forecast for official GDP growth for this year to 6.7% from 6.8%.

Stimulating Growth

Evans-Pritchard wasn't alone in noting the stability of China's data.

"In China, these numbers don't tend to bounce around a lot. They tend to be remarkably smooth," said Louis Kuijs, head of Asia economics at Oxford Economics.

"The authorities feel so strongly about the GDP numbers that the whole government apparatus are always doing everything they can, especially in terms of policies and stimulating growth to make sure that the activity numbers, the economic growth numbers are pretty close to what it's targeting."

Kuijs said he viewed the focus on meeting the 6.5-7.0% economic growth target as a setback.

He noted that last year, high-level policymakers had indicated that it would be acceptable to miss growth targets, but then late in 2015, the government returned to a rigid interpretation.

"Many economists find that unfortunate," Kuijs said. "If you have organic growth in your economy of around 5.5% in a context of a pretty subdued global economy, if you continue to insist on 6.5% growth, that means you have to rely on rapid credit growth and other macro-economic stimulus to achieve it."

China's economy has been expected to slow as the mainland transitions from manufacturing-led growth toward consumption. Concerns have persisted over the mainland economy's health, as private-sector debt has surged even as the amount of growth from additional debt has declined.

What lies ahead for China's economic growth?

Suan Teck Kin, an economist at Singapore-based UOB, has what may be an unsurprising forecast for the fourth quarter:

"We do not expect China's full year growth in 2016 to deviate significantly from our forecast of 6.7%, and this means that fourth-quarter GDP growth is likely to come in at similar pace of 6.7%," he said in a note on Wednesday.

Property Demand

However, what was clear in the GDP report is that sizzling property demand in the summer was a big part of the 6.7% growth reported.

Responding to concerns that curbs on property purchases could slow the economy, investors should not “exaggerate” the role of real estate in China’s economy, Sheng Laiyun, a spokesman at the National Bureau of Statistics, said to reporters in a press conference in Beijing Wednesday.

Total property sales increased 41.3% in the first three quarters this year, indicating why Beijing introduced curbs in 22 cities in October.

Despite the surge in property sales, overall housing inventory remains a major issue across China. Nationwide, unsold housing was at 696.12 million square meters for the end of September this year, down just 2.5% from the end of June.

 

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