BEIJING (Oct 16): China's economic growth is expected to ease to 6.8% in the third quarter from 6.9% in the previous quarter due to a cooling property sector and the government's battle against debt risks, a Reuters poll showed.
Analysts' projected slowdown was at odds with central bank governor Zhou Xiaochuan's forecast suggesting an upside surprise as the economy could grow 7% in the second half of the year, versus 6.9% in the first six months.
The poll of 54 analysts, conducted before Zhou's forecast, showed a modest cooling in GDP growth — but within Beijing's comfort zone, as President Xi Jinping is set to strengthen his grip on power at a Communist Party Congress this week.
Zhang Yiping, an economist at Merchants Securities, said Zhou's forecast may have raised upside risks for his prediction of 6.8% growth for the third quarter, although he still expected a gradual cooling in the economy.
"The economy is likely to slow steadily given that property investment and infrastructure investment could slow, although the impact from rising borrowing costs on the economy could be limited," Zhang said.
Analysts have penciled in a gradual GDP slowdown due to an expected softening in property investment and construction as more cities try to cool surging housing prices, while a government campaign against riskier lending pushes up borrowing costs.
China will release third-quarter GDP on Oct 19 — a day after the opening of the Party Congress — along with September industrial output, retail sales and fixed asset investment.
A surprisingly upbeat gross domestic product reading would likely lift stocks and global commodity prices, and boost bullish sentiment on the yuan, which has gained about 5.6% against the dollar so far this year.
Economists in the poll estimated GDP grew 1.7% quarter-on-quarter, unchanged from the second-quarter, though only 18 analysts gave sequential forecasts.
At the opening of the Party Congress, President Xi is likely to shed light on China's long-term economic development plans beyond 2020, amid market hopes that he may deepen economic reforms to help the economy overcome the "middle income trap".
Investors are waiting to see if sustained economic growth this year will give China's leaders the confidence to quicken reforms, though many policy insiders believe Beijing will tread cautiously in implementing painful changes due to resistance and worries about the impact on economic stability.
Few specific policy changes are expected from the Party Congress and analysts are looking to the annual Central Economic Work Conference, which is usually held in December, for signals on the 2018 growth target and policy initiatives.
The Chinese authorities are trying to walk a fine line by containing riskier types of financing and slowing an explosive build-up in debt without stunting economic growth.
The PBOC in late September cut the amount of cash that some banks must hold as reserves (RRR) for the first time since February 2016. The move, effective in January, offers an earnings boost to banks if they lend more to struggling smaller firms and the private sector.
STEADY SEPT DATA EXPECTED
Analysts expected September industrial growth to accelerate to 6.2% from a year earlier, against August's 6%, while retail sales growth is seen edging up to 10.2%.
Fixed-asset investment is predicted to have increased 7.7% in the first three quarters on-year, only slightly softer than a 7.8% rise in January-August.
The economy grew 6.9% in the second quarter — the same as the first quarter, defying expectations for a slowdown due to firmer exports and a resilient property sector, despite a government pledge to crack down on rising risks.
The economy is on track to hit the government's full-year growth target of around 6.5%.
Economic activity showed visible signs of slowing in July and August, as the property sector finally cooled in response to government measures, while lending costs rose — the result of a government crackdown on riskier types of lending.
But some data for September pointed to a slight improvement, with imports and bank lending growing more than expected, while exports picked up.
On Monday, data showed producer prices in September jumped 6.9% from a year earlier, confounding views that producer inflation had peaked.