China Economics Update : Rebound peaked in 3Q13

China reported 3Q13 GDP growth of 7.8% YoY supported by thelow base in 3Q12 and QoQ improvement in FAI and retail sales.

    The result was in line with what the market had been expecting andhigher than 7.6% YoY growth achieved in 1H13.

    Slight deceleration in FAI growth. FAI declined marginallyfrom 20.3% YoY in August to 20.2% YoY in September due toa decline in infrastructure investment, from 24.7% YTD YoY inAugust to 24.2% YTD YoY in September. In contrast,manufacturing investment increased from 17.9% YTD YoY inAugust to 18.5% YTD YoY in September as did propertyinvestment, from 19.3% YTD YoY in August to 19.7% YTDYoY in September.

    Industrial production softened to 10.2% YoY inSeptember from 10.4% YoY in August, as electricityproduction fell from 13.4% in August to 8.2% YoY inSeptember and oil production declined from 5.5% YoY inAugust to -1.2% YoY in September. Automobile productionwas one of the few bright spots, improving from 14.8% YoY inAugust to 17.5% YoY in September. We expect continuingmoderation in 4Q12 as the effects of the low base diminish.

    Retail sales growth moderated to 13.3% YoY inSeptember after peaking at 13.4% YoY in August. Moreobvious deceleration was seen in real terms, from 11.6% YoYin August to 11.2% YoY in September. Demand for electronicequipment and automobiles enjoyed a nice rally, accelerating1.4ppt and 6.2ppt while food and furniture slowed inSeptember on seasonality. We expect consumption growth toremain broadly stable in 4Q13F.

    Exports declined 0.4% YoY in September (versus 7.1% YoYin August), mainly due to the high comparison base in the lastfour months of 2012 when the statistics were inflated by fakeexports. We expect the effects of the high comparison base topersist into 4Q13F and exports to continue withlow-single-digit growth. The trade surplus fell from US$65.7bin 2Q13 to US$61.5b in 3Q13.

    CCBIS view

    Reform the focus in 4Q13F. We expect lower 4Q13F GDPgrowth of 7.5% YoY as the impact from the high comparisonbase and mini-stimulus policies fade out. We hold out littlehope for fundamental improvement and expect investors willbe focused on those sectors that stand to profit from reformpolicies arising from the Third Plenary Session in November.