China regains momentum
China’s economy has picked up steam in Q3. In August, industrial production rose by 10.4% on the year, the fastest annual rate since March 2012. The official manufacturing PMI suggests that this strength continued in September with domestic new orders rising to 52.4, the highest since April last year. Retail sales have grown steadily. As a result, we now expect growth of 7.4% in 2013, close to the Government’s target of 7.5%.
Some of the pick-up reflects the strong growth in credit at the beginning of this year, as well as some of the fiscal measures taken to support small businesses, such as tax cuts. Actual credit growth has now slowed significantly and this will have more of an impact on investment. So investment and GDP growth are both set to slow, and we expect growth closer to 7% next year.
Hong Kong’s exports have gained strength but Hong Kong remains very exposed to financial markets. The Hang Seng fell sharply in May and June but it has rallied recently. However, it remains lower than a year ago. In addition, property prices have moderated in response to government measures to cool the market. The Shanghai Free Trade Zone is now open. And as China’s economy matures, increasing demand for financial services could help to drive growth in Hong Kong and the Mainland close to 7% over the medium term.
Source: China Bureau of Statistics; Haver Analytics.
Hong Kong: Stock market
Source: Hang Seng Index Services Limited; Haver Analytics.
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