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Economic reports from China helped influence risk sentiment this week. And if that made you wonder how China’s economy is doing overall, then today’s Economic Snapshot will help you out.

Note: As with all Economic Snapshots, there are nifty tables at the bottom, so you can skip to those if you’re a forex trader who’s in a hurry. The bullet points provided highlight the underlying details and trends that give the numbers their proper context, however.


  • China’s Q2 2016 GDP expanded by 6.7% year-on-year, matching the previous quarter’s rate of expansion and beating expectations that it will slow to 6.6%.
  • In terms of trend, the year-on-year reading has stabilized after growing at an ever slower pace for the three consecutive quarters.
  • The current reading is also the slowest rate of expansion since the 2008 global financial crisis.
  • China is also still growing within the the PBoC’s growth projections.
  • For reference, the PBoC’s target range for annual GDP growth in 2016 is 6.5%-7.0%.
    Quarter-on-quarter, China’s Q2 GDP grew by 1.8%, beating the consensus reading of 1.6%.
  • This is the fastest growth rate since Q3 2015.
  • The previous reading was also slightly revised from 1.1%, which is the lowest reading on record, to 1.2%, which is still the lowest reading on record.
  • The better-than-expected reading broke two straight quarters of deteriorating quarter-on-quarter growth.
  • In terms of output, annual GDP growth was driven mainly by the 6.0% increase in combined industrial output from mining, manufacturing, and utilities, which is a faster growth rate than Q1’s 5.8%.
  • This was offset by weaker growth from the relatively large financial industry (5.3% vs. 8.1% previous).
  • There was no GDP breakdown using the expenditure approach, but the National Bureau of Statistics (NBS) released a separate report which stated that fixed asset investment grew by 9% during the first half of 2016.
  • This is slower when compared to the 9.6% increase in investment that was printed during the first half of 2015.
  • Total trade value for the first half of 2016 also fell by 3.3% year-on-year, with exports falling by 2.1% and imports down by 4.7%.


  • Month-on-month, China’s headline CPI soared by 0.7% in September, soundly beating expectations of a 0.3% increase.
  • The much faster reading was due primarily to the 1.2% jump in the cost of food, liquor, and tobacco products (+0.3% previous), as well as the 0.8% rebound in the price of clothing (-0.1% previous).
  • Year-on-year, CPI grew by 1.9% in September, which is a rather sharp increase from the previous month’s 10-month low of +1.3%.
  • The jump also broke four consecutive months of ever weakening increases in CPI.
    And for reference, the PBoC’s target for annual inflation in 2016 is around 3.0%, so the annual reading is still some way aways.
  • The faster annual increase was mainly due to the 2.7% increase in the cost of food, liquor and tobacco products, which is a much faster increase compared to the 1.5% increase last time.
  • Aside from that, the softer drop in transportation costs (-0.4% vs. -1.2% previous) and the the stronger increase in the cost of education, culture, and recreation (+2.0% vs. +1.3% previous) also helped.
  • The aforementioned items are also the reason why the core reading ticked higher in September.

Business Conditions & Sentiment

  • Total industrial production in China grew by to 6.3% year-on-year in August, which is the biggest annual increase in five months.
  • The bigger increase was mainly due to the 1.3% fall in mining output, since it’s a much softer reading compared to the 3.1% slump in output that was reported in July.4
  • However, manufacturing output only grew by 6.8% year-on-year, which is the weakest annual increase since January of this year.
  • Also, manufacturing output has been growing at a weaker pace for two straight months as of August.
  • Looking forward, the official manufacturing PMI reading from the National Bureau of Statistics (NBS) held steady at 50.4 in September.
  • This shared reading is the highest since November 2014’s 50.8 reading.
  • Looking at the components, the production index improved from 52.6 to 52.8 while the employment index improved from 48.4 to 48.7.
  • However, these were offset by the dip in the new orders index from 51.3 to 50.9.
  • The reading for the new orders index is still above the 50.0 stagnation level, so demand was still growing, albeit at a slower pace.
  • Demand came mainly from abraod while domestic demand likely weakened because the new exports index jumped from 49.7 to 50.1 in September.
  • The manufacturing PMI reading from Markit/Caixin is roughly in line with the official reading, since it ticked higher from 50.0 to 50.1.
  • The uptick was due to a marginal increase in new orders, “as new export work stabilises.”
  • This also marks the third month that the PMI reading has been at or above the 50.0 stagnation level after the reading went below 50.0 back in February 2015.
  • Moving on, the official non-manufacturing PMI reading from the NBS climbed from 53.5 to 53.7 in September.
  • Looking at the components, the official services PMI came in at 52.3, which is lower than the previous month’s reading of 52.7.
  • Construction was able to more than make up for the weaker improvement in the service sector, though, since the construction index surged by 3.7 points to 61.9, thanks to “the production activities of construction industry [accelerating] significantly.”
  • The services PMI report from Markit/Caixin agreed with the official services PMI reading, since it edged lower from 52.1 to a three-month low of 52.0.
  • The downtick was due to a more modest expansion in service sector activity, according to the PMI report.

Consumer Sentiment & Spending

  • For the month of August, China’s official consumer confidence index eased from 106.8, a 14-month high, to 105.6.
  • This is still above the 100.0 neutral level, but a long way away from the 200.0 extreme optimism level, so Chinese consumers still appear to be a slightly optimistic bunch, albeit not so much as last time.
  • The lower consumer confidence didn’t seem to have a negative effect on consumer spending since retail sales increased by 0.83% month-on-month in August, which is a faster rate of increase compared to July’s +0.75%.
  • Year-on-year, retail sales increased by 10.6%, which is an improvement over July’s annual increase of 10.2%.
  • There’s no clear short-term trend for both annual and monthly retail sales.
  • Long-term, both annual and monthly readings have been trending lower since 2012 for the annual reading and 2013 for the monthly reading.
  • The jump broke two straight months of worsening retail sales readings, and is the highest reading in a year to boot.
  • The annual retail sales reading also jumped to a six-month high of 10.6%, beating expectations that it will increase by 10.0%, same as last time.
  • The recent annual reading also broke two straight months of slowing growth in retail sales.


  • China’s dollar-denominated trade surplus in September was $41.99 billion, narrowing drastically from the previous month’s surplus of $52.05 and missing expectations that it would widen to $53.00 billion.
  • The miss was apparently due to the 3.2% decrease in exports, which is a significant drop from the 4.4% increase that was reported during the previous month.
  • This also means that the PMI readings were a miss with regard to exports.
  • Year-on-year, things also looked pretty bad because exports plunged by 10.0%, which is the hardest drop in seven months, and a much harder drop than the expected 3.0% slump.
  • To make matters worse, the annual reading for exports has been in negative territory for six consecutive months running, as of September.
  • Imports also slid back into negative territory, dropping by 1.9% after rising by 1.5% previously.

China's Economy: Growth

China's Economy: Inflation

China's Economy: Business Conditions

China's Economy: Consumer Spending & Sentiment

China's Economy: Trade

Putting it all together

China’s Q2 GDP accelerated on a quarter-on-quarter basis but maintained its pace on an annual basis. Looking forward, China’s economy looks robust, since industrial production remain strong. Exports did take a hit in September, though, and that will be a drag on Q# GDP growth. As for inflation, it is still a major weak point. However, the recovery in September is a very welcome development.