China’s 3Q GDP growth of 4.9% came in line with our expectation (5.0%). Growth during the first three quarters turned positive to 0.7% YoY from -1.6% in 1H20. Pace of recovery still varied across sectors and industries. While growth of the primary and secondary sector has almost rebounded to pre-pandemic levels, that of the service sector fell short and may take longer to get back normal. Nonetheless, sequential improvement was broadly observed in both supply and demand. Job market continued to tighten, with unemployment rate edging down and leading indicators trending up steadily.
- Industrial output accelerated to expand 6.9% YoY in Sep, boosted not only by sustained satisfactory performance of high-tech industries (+7.8%) but also by robust recovery of traditional industries. All of the 17 major manufacturing industries reported speedier growth or narrowing decline in 9M20 compared to 8M20. Fastest recovering industries include automobile, electrical machinery, general-purpose machinery, and computers, communication & electronic equipment.
- Urban FAI advanced 0.8% YoY in 9M20, the first positive growth since this year. 1) Manufacturing FAI narrowed its decline to 6.5% in 9M20, with investments of pharmaceuticals and computers, communication & electronic equipment industries outpacing others at 21.2% and 11.7% YoY. 2) Infrastructure FAI turned positive growth at 0.2% YoY in 9M20. However, monthly growth seemed to be cooling down partly due to last year’s high base, increasing 3.2% YoY in Sep vs. 4.0% in Aug. Komtrax data also showed that hours of machine use inched down a bit in Sep. 3) Real estate investment speeded up to increase 5.6% YoY in 9M20. Resilient growth was attributable to both construction spending and land acquisition expenditures.
- Retail sales +3.3% in Sep, driven by booming demand before and during the Oct 1 holiday. Catering sector warmed up, +1.9% for the above-designated-size sample, marking the first positive growth since COVID-19. For the full sample, catering also narrowed decline from 7% in Aug to 2.9% in Sep. Momentum of strong car sales lasted into Sep, +11.2% in retail value. Excluding car sales, retail sales growth was 2.4% YoY in Sep.
- Risks. 1) When winter approaches, infrastructure spending and construction activities may decelerate; 2) Urban residents, who contribute to the majority of consumption spending, experienced 0.3% decline of real disposable income in 9M20, lagging GDP growth and income growth of rural residents. Such lacklustre income growth is likely to weigh on consumption recovery.