- The batch of real activity data that came out of China on 9 August surprised the market on the upside, but it was in line with our view of continued growth in China, supported by robust domestic demand.
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- The data, together with the better-than-expected external trade data released on 8 August, should provide comfort to policy makers and the markets. It also makes major stimulus less likely.
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- We remain comfortable with our 2013 GDP growth forecast of 7.5% year-on-year, with a pick-up in sequential growth in the second half of the year.
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Solid domestic demand
Fixed asset investment (FAI) increased 20.1% year-on-year in July, up from 19.3% year-on-year in the previous month (see table below). Growth of FAI in manufacturing improved from 15.2% year-on-year in June to 17.1% year-on-year in July. But that was still lower than growth in 2012, due to spare capacity in many sectors and pressure on profit margins.
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Real activity indicators (year-on-year unless otherwise indicated)
Although the July data for FAI in infrastructure and real estate has not yet been released, there are signs that these sectors have been expanding solidly. The trend in infrastructure investment is likely to continue, given recent policy support from the government. The China Railway Corporation has confirmed that it would increase its FAI and new railway mileage this year.
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The robust momentum of real estate FAI has been supported by the growing housing market. Starts and construction in the ?commodity? (market) sector picked up momentum in July (see chart below).
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Starts and construction of commodity buildings up in July
Floor space started of commodity buildings expanded 45.2% year-on-year, the fastest pace since November 2010. In the meantime, floor space under construction also increased 41.7% year-on-year.
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On the consumption front, retail sales held up reasonably well, growing 13.2% year-on-year in July, after 13.3% year-on-year in June. By taking out the price effect, we estimate these expanded 11.3% year-on-year in real terms, down from 11.7% year-on-year in June.
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Consumption has been affected by slower wage and income growth. Nation-wide household income increased 9% year-on-year in second quarter 2013, substantially less than the average of 12% in 2012.
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Retail sales of the catering industry, which has a share of nearly 11% in the total, remained sluggish in July, due to the still tight rules on government spending.
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Source: http://feedproxy.google.com/~r/cfoi/~3/hay8lTmTF9g/china-gdp-outlook-solid-growth-provides-comfort
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