The Chinese economy has extended its recovery in Q3. The GDP growth for July-September was already 4.9% y/y, higher than our estimate of 4.1% but lower than consensus of 5.2%. This confirms the view that the output losses at least so far have been much smaller in China than in the Western countries where the annual growth rates continue to be clearly negative.

The next big event for China analysts will be already next week when the annual Party meeting will take place and China will publish the next 5-year plan. It is expected to deliver a plan to take China to the next level of development and at the same time to reduce the dependency on other countries, ie the so-called dual circulation economy.

The quarter-on-quarter growth was 2.7%, which was much lower than 11.5% in Q2 but still much higher than the usual quarterly growth of around 1.5%. That suggests that the Chinese economy is still in recovery mood.

Chart 1: Recovery continues in China and supported by all sectors

Chart 2: The GDP growth is in line with our broad-based activity indicator

The recovery is still asymmetric across the sectors. The industrial sector is back on track while consumption still has some way to go.

Chart 3: Infrastructure projects stood behind the industrial outperformance

The industrial outperformance is mainly driven by a boom in the manufacturing and construction sectors, thanks to infrastructure investments and rising property prices. Exports have not suffered from a prolonged slump as many feared, providing additional support to the industrial sector.

On the other hand, consumer sentiment has been lifted by the low new infection rates domestically as well as the rising property and stock prices.

Chart 4: Service sector activity has recovered remarkably

Chart 5: Income expectations remain subdued and will likely weigh on consumption

Chart 6: Golden Week tourists fell for the first time on record