Economic Update


More Macro-prudential Measures Expected amidst Stabilised Growth in the Mainland

The Chinese economy continued to perform steadily in the third quarter, despite slight moderations in retail sales and fixed asset investment (FAI) growth rates. While it is unlikely to see downside surprises in economic data in the near term, much policy attention may turn to taming the runaway property prices.

Stabilising signals continued

In July/August, the Mainland’s economic growth continued to be supported by the stabilising external and domestic demand growth.

In USD terms, exports continued to grow at 5.3%YoY in July/August, the same pace of growth as 1H2017 (see Chart 1). This was due largely to the stabilising economic situations in major trading partners, such as the U.S. and E.U., where GDP growth beat market expectation and reached 3.1% and 2.4% YoY growth respectively in 2Q2017. With the approaching holiday season subject to favourable comparable base impact, export growth rate may climb steadily in the coming months.

Domestically, retail sales growth remained largely stable (see Chart 2), despite the fact that the rate of growth dipped slightly from 10.4% YoY in 1H2017 to 10.2% YoY in the first two months of 3Q2017. On the other hand, the momentum of online sales of consumer goods remained strong in the Mainland, soaring 31.8% YoY[1] in the first eight months (34.7% YoY in July/August comparing to 30.9% YoY in 1H2017). As a whole, the data (i.e. online plus retail sales of consumer goods) suggested that domestic consumption growth remained very strong (+12.6% YoY), and its contribution to GDP growth will likely remain intact in the near term.

Comparatively speaking, investments growth in the Mainland has decelerated somewhat, with FAI growth dropping from 8.6% YoY in the first half to 5.2% YoY in July/August. In spite of varying magnitudes of moderation, the pressure was felt across companies in different ownership structure (i.e. both private and state-owned enterprises) and across sectors (see Table 1). It is noteworthy that investment in the real estate sector was a notable exception, but this trend may change because of the macro-prudential measures introduced by the various local governments.

Macro-prudential measures introduced to address property market risks

Property developers have been steadily increasing investment in residential projects since late 2015, with new home prices reaching new highs in most cities. However, recent data showed that 18 cities recorded price declines in August on a month on month basis (see Chart 3) – potentially the result of some macro-prudential measures – and could indicate that real estate investment could see less strength.

On the back of soaring property prices in first tier cities, tighter mortgage conditions have come into play as the People’s Bank of China’s (PBoC) reportedly urged banks to control lending to the property sector. As a result, Mainland cities, including Shenzhen and Beijing – where property prices soared 23.5% and 25.9% YoY in 2016 respectively – have seen moderation of prices recently.

According to Tencent News, over a hundred cities have introduced countercyclical measures, and the “government’s determination to tame property prices could not be deterred.[2] Other news reports suggested that the PBoC have asked commercial banks to be more prudent in granting loans to their customers, and requested banks to investigate if there were any violations of the use of the proceeds of loans provided to customers (e.g. to check if some granted commercial/personal loans were used for property purchases). These actions should effectively reduce the liquidity going into the property market, and in turn weaken property investment demand.


With worries about slowing economic growth largely out of sight, policymakers may put stronger emphases on cooling property prices and reducing the Mainland’s indebtedness, which are two key issues to be highlighted in the 19th National Congress of the Communist Party of China – where the formal leadership selection process will take place and new leaders are expected to set out key policy priorities. As a result, more macro-prudential measures may be unveiled.

Measures to tame property price surges and stricter regulations on the approval of property related loans should be expected in the near term. However, as property related loans now account for 25.9% of the total portfolio of commercial banks, both Central and local governments would halt the introduction of macro-prudential measures to avoid meltdown of the property market. Therefore, while stabilisation of prices in certain cities could be within reach, the chance of seeing a plummet of property prices is slim.

[1] The growth rate was calculated using year-to-date value of online retail sales of goods.

[2] Tencent News (27 September, 2017)


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