China’s GDP edges higher as activity stabilised in September
The desk interprets China's recent GDP growth of 4.5% in Q3 2023 as a stabilizing factor for the economy, although concerns over weak domestic demand persist. Per the full note from ING, while the growth number slightly beat expectations, the contribution of final consumption expenditure to GDP hit its lowest point since Q4 2022, indicating persistent vulnerabilities. With no major economic catalysts in the upcoming calendar, traders should monitor how this stabilization reflects in future data outputs and positioning around key currency pairs influenced by Chinese economic performance.
What the desk is arguing
The desk sees the latest GDP growth figures from China as a stabilizing signal, though the accompanying data reveals ongoing issues with domestic demand. According to ING's analysis, while the GDP of 4.5% YoY exceeds prior expectations, it masks the underlying weakness in consumption, emphasizing that the economy's robustness remains in question.
Notably, the tertiary sector has outpaced primary and secondary sectors, growing at 5.2% YoY, but the weak contribution from retail sales, sitting at 1.1%, reflects a cautious consumer sentiment. This presents a dichotomy where strong external trade supports growth, but sluggish internal demand forms a potential headwind.
Where it sits in our coverage
Current consensus on USD/CNY has a target of 1.075, aligning closely with expectations around the currency's future trajectory. Key projections include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
The desk’s outlook positions itself towards the upper edge of this spread, indicating a more optimistic view on currency appreciation against the CNY as external trade continues to bolster GDP performance.
How other firms see it
The consensus leans toward a more cautious stance, with firms like bofa targeting a weaker outlook, positioned against those like jpmorgan who offer a more bullish estimate. The divergent views highlight potential volatility in the market as these economic indicators unfold.
Traders should keep an eye on USD/CNY, as shifts in the Chinese economic landscape could directly impact currency valuations linked to trade flows and sentiment towards emerging markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01China's Q3 GDP rose to 4.5%, above market expectations.
- 02Weak domestic demand reflected in retail sales growth, only at 1.1%.
- 03External trade surplus boosts GDP despite internal consumption concerns.
- 04Tertiary sector growth continues to lead, raising questions about overall economic balance.
Market implications
Traders should watch how the USD/CNY reacts to these economic signals, particularly with the Fed's stance on rates and potential implications for trade flows. The stabilizing GDP may encourage a bullish bias towards the yuan if domestic demand shows signs of recovery.
Risks to this view
A reversal in sentiment could occur if domestic consumption fails to recover, risking lower growth estimates and potential depreciation of the yuan. Furthermore, a significant drop in demand from key trading partners could exacerbate this dynamic.
Articles China’s GDP edges higher as activity stabilised in September Published 02:42 China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download China's third-quarter GDP growth of 4.5% will likely keep this year's growth target on track. September data showed signs of stabilisation, though domestic demand remains underwhelming Lynn Song Source: Shutterstock 4.5% YoY China's 3Q GDP Higher than expected China's 3Q GDP comes in slightly stronger than expectations China's GDP rebounded to 4.5% year-on-year in the third quarter, up from 4.3% in the second quarter, a little stronger than expected (market: 4.4%, ING: 4.4%). This brings the year-to-date GDP growth down to 4.6% YoY.
By industry, China's tertiary sector continued to grow fastest for the sixth consecutive quarter, up 5.2% YoY in 3Q, versus 3.6% and 3.4% for the primary and secondary industries, respectively. As China's economy matures, the services sector will play an even larger role. A strong third-quarter trade surplus drove China's rebound.
Final consumption expenditure's contribution to GDP, at 2.148pp, was at its lowest since 4Q22. With a few months left in the year, we believe China's economy is well positioned to achieve its 2026 growth target of 4.5-5.0%. However, the economy remains quite unbalanced heading into 2027, leaving growth vulnerable to disruptions in external demand.
Fortunately, we also saw some favourable signs from the September domestic activity data. GDP growth should end the year on target September's domestic data showed signs of stabilisation September's domestic activity data generally improved from August, contributing to the 3Q26 GDP outperformance. Below are our takeaways from the major data releases: Retail sales growth was stronger than forecasts (market: 0.5%, ING: 0.6%), rising to 1.1% YoY from 0.4%.
Strong communication appliance (31.1%) sales drove the data, likely benefiting from a host of new phone model launches. Beyond this category, sales of consumer staples such as tobacco and alcohol (13.8%), grains & oils (6.7%), and beverages (5.0%) all outperformed. However, many discretionary consumption categories, such as gold and jewellery (-9.6%) and autos (-21.2%), remained weak.
Fixed asset investment growth stabilised at -7.2% YoY after decelerating every month since March, coming in stronger than expectations (market: -7.3%, ING: -7.5%). This stabilisation reflects public-led (-3.2%) and manufacturing (-2.1%) FAI picking up on the month, offsetting slowdowns in private-led (-10.4%), real estate (-20.6%), and infrastructure (-4.2%) FAI. Investment has clearly been a major drag this year, so stabilisation is encouraging, possibly as efforts to accelerate fiscal spending outlined at July's Politburo meeting begin to take effect.
Sources & References
How we cover this story