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[sludgehound]

China's GDP projected to grow 6.7% YoY in 3Q15
22:00 ET
CHINA SEP INDUSTRIAL OUTPUT YY* DECREASE TO +5.7 % (FCAST 6.0 %) VS PREV 6.1 %
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GDP is projected to grow 6.7% YoY in 3Q15, down from 7.0% in 2Q15, making it the slowest quarter since 1Q09. Key macroeconomic indicators continued to disappoint. Exports and imports contracted 5.9% and 14.4% in 2Q15 respectively, versus 2.2% and 13.6% in 1Q15 respectively. The trade surplus widened to USD 163.6 bn , up from 137.8 bn in 2Q15. Sluggish external demand would keep export growth negative in 4Q15.  Among September data to be released, retail sales and industrial output are expected to grow 10.8% YoY and 6.0% respectively, versus 10.8% and 6.1% in Aug respectively. Meanwhile, FAI (YTD) is expected to grow 10.7%, versus 10.9% in Aug. On a quarterly basis, retail sales, industrial output and FAI (YTD) growth would have averaged 10.7%, 6.0% and 10.9% in 3Q respectively.  For all the talk of rebalancing, investment continues to be the key growth driver, and FAI is likely to slow further. In the property sector, investment growth would only pick up once inventory levels drop meaningfully, which may take more than half a year. In the industrial sector, there is hitherto no concrete plan to destroy excess capacity. The outlook for manufacturing investment is particularly dire as aggregate demand - both external and domestic - remains weak and state-support for the sector remain limited. Infrastructure investment may pick up somewhat once fiscal stimulus ramps up. Even so, the impact of fiscal policy will be more muted than the 2008/2009 round. With such a huge - and growing - legacy of local government debt, the government is likely to be prudent with regards to fiscal spending.  Monetary policy is no panacea either. Since the first rate cut in late 2014, loan growth has notably quickened (from 13.4% in Nov14 to 15.4% in Aug15). This is peculiar because judging from tepid IP, FAI, PMI and import numbers, loan demand should have been weak. Indeed, a PBoC survey showed that sentiment on loan demand plummeted below the trough of the global financial crisis. More loan growth would not boost GDP growth much if they were merely used for rolling over debts, or filling gaps in short term liquidity.  More aggressive monetary and fiscal stimulus may arrest growth deceleration temporarily. This will buy much-needed time for China to improve its economic fundamentals - primarily through decisive market-oriented reforms. Much more needs to be done.