The stronger-than-expected third-quarter data mean that, barring a dramatic deceleration in 4Q, China will likely manage to reach its full-year target of “around 5%” growth.
Domestically, the Fourth Plenum meetings this week are likely to give some insights into China’s 15th Five-Year Plan. The full text will not be available until the plan is formally approved at the Two Sessions next year. This plan will offer some insight into how China plans to navigate an increasingly difficult external environment. Investors will likely watch closely for signs of concrete steps to boost consumption, as well as areas for tech development and focus.
The long-awaited and high-stakes Xi-Trump meeting next week in South Korea looks likely to take place despite the recent escalations in US-China friction. Language and signalling suggest that both sides would prefer to reach some sort of agreement to continue the current uneasy truce rather than see a re-escalation back to, or beyond, this year’s peak tensions in April-May. The odds of miscalculation remain, though, representing a potential downside risk to the outlook. While we see a diminishing marginal impact from further tariff hikes, the prospects of non-tariff escalations represent a notable uncertainty. Regardless of how talks go, China’s export resilience suggests that trade is about more than just US tariffs , and external demand should support growth for the rest of the year.
Monetary easing has been incremental over the past year. This is likely due to concerns over perceptions of limited policy ammunition, given the low nominal rates, the rally of equity markets, and China’s broader currency stability objective. Loan prime rates remained unchanged in October as expected, and the 3Q data beat may further reduce the immediate urgency for stimulus. However, soft inflation and loans data combined with the slowdown of activity indicators still suggest that the case remains solid for further monetary easing. An unfavourable outcome from the US-China talks could expedite monetary easing, while any upside surprises could further reduce the urgency for policy support. We still have one 10bp rate and 50bp reserve-requirement ratio (RRR) cut pencilled in for this year.