In an update by NAB Group Economics – China’s economy at a glance – the weakness of China’s industrial sector, which fell 2.5 per cent in Q3, is in stark contrast to the growth in the country’s services sector.
“The weakness in the ‘old economy’ remains evident – industrial production slowed further in October, while investment continued to trend lower (albeit recording marginally stronger growth than in September) – led by contractions in the real estate sector (where new construction activity remains weak),” NAB said.
NAB noted that China’s service sector is now substantiating itself as the largest contributor to economic growth. The services sector contributed around four per cent to GDP in Q3.
“Despite the correction that commenced in June, the finance sector continued to contribute a sizeable share of service sector growth in Q3 – accounting for 28 per cent of total services growth.
“Given that the equities boom commenced in Q4 2014, it is unlikely that finance will continue to provide significant growth momentum in this quarter,” NAB stated.
NAB also noted that the country’s benchmark one-year lending rate of 4.35 per cent, following its cut by the People’s Bank of China’s (PBoC) in late October, is likely to fall again.
“Given the comparatively high rate – when compared with policy rates in advanced economies – the PBoC has considerable scope for further monetary policy easing.
“We expect two further cuts in H1 2016 – to bring rates to 3.85 per cent by mid-year. Further cuts to the Required Reserve Ratio will also be likely to ensure adequate liquidity remains in financial markets,” the update said.
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