BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/42
Industrial output rose 6 % y-o-y in September, while retail sales were up nearly 10 %. Growth in fixed investment accelerated slightly, climbing 9 % y-o-y in September. The investments of state and state-owned enterprises have risen considerably faster (up 21 % in January-September) than private investment (up 3 %).
A disconcerting aspect of China’s high growth is the quality of the growth. The growth has been supported by government stimulus measures financed with ever-increasing debt. Growth has also been boosted by the overheated real estate sector and increased borrowing for apartment purchases. Looking at the GDP components, the real estate sector’s growth accelerated from below 4 % last year to 9 % in the first nine months of this year. Measured by liveable floorspace, apartment sales were up 27 % y-o-y in the first three quarters. The rapid rise in real estate prices has not ignited a construction boom, however. New construction starts, again measured by floorspace, increased 7 % in January-September, even as sales of the land rights for housing construction fell 6 %. Several cities have tightened apartment purchase conditions and downpayment requirements, so that the impacts of the real estate boom are likely to be quite transient.
The September figures give a two-track picture of progress in economic structural reforms. On the demand side, growth has largely been consumption-driven – in the first three quarters of this year, 71 % of GDP growth came from consumption. On the supply side, the service sector has grown to account for 53 % of economic output, while service sector growth has slowed and its contribution to economic growth has fallen slightly to 60 % of GDP growth. A standout feature of the new figures is the rapid slowing in income growth. In January-September, average disposable incomes grew 6 % y o-y in real terms, down from 8 % growth a year earlier. Especially growth in migrant worker incomes has slowed fast.