“For the first time ever, services and consumption accounted for more than half of China’s GDP, at 51.4%, up from 41.4% a decade ago,” wrote Andy Rothman, investment strategist, in a research note.
“This mitigates weakness in manufacturing and construction, and, if this rebalancing continues, it should mean that macro deceleration will be gradual.”
In the first three quarters, consumption accounted for 58% of GDP growth.
“Chinese consumers shrugged off the A-share market fall, with a small acceleration in spending,” he added.
Limited impact
Changyong Rhee, director of the Asia and Pacific department of the IMF, said that the danger of excessive leverage in the market has become clear. Fuelled by strong credit growth, stock markets surged by over 100% between November 2014 and this past June, only to correct by 40% in recent months.
“The good news is that it is expected to have only a limited direct impact on the economy, given the low degree of share ownership by Chinese households and the low share of equity in corporate financing,” Rhee noted.
China’s year-on-year GDP growth of 6.9% beat most analyst forecasts, which were expecting 6.8%.
Edmund Goh, investment manager at Aberdeen Asset Management, said that China’s performance was slightly stronger than expected.
“The household sector is holding up better than the more cyclical corporate sector, which reinforces the government’s intention to transition towards a more consumption-driven industry,” Goh said.
Russ Koesterich, BlackRock’s chief investment strategist, noted this week that “investor’s newfound patience with weak data arguably shows optimism that government-led stimulus will help stabilise the economy”.
“To be fair, some green shoots are evident, including rising home prices,” Koesterich said.
However, Rothman, from Matthews Asia, pointed out the irrelevance of analysising GDP growth.
“The 6.9% GDP growth number was the least important number published Monday in Beijing. We don’t base investment decisions on GDP growth in any market.”
