Chinese GDP data surprises, in line with expectations…..

Chinese third quarter GDP data surprised everyone, coming out right in line with market expectations. The economy grew by an annual rate of 6.7% in the third quarter, providing comfort that Chinese authorities have steadied the ship. The central planners remain committed to their official growth range of 6.5% to 7% but at what cost?

The economy is increasingly reliant on government spending, but the big risk is that the Chinese property market is hotter than ever, now accounting for 15% of GDP. Fuelled by debt, property prices have seen massive gains over the last year.

In September, the Bank of International Settlements warned of a Chinese banking crisis within 3 years, while Moody’s Investors Service also sounded the alarm bells on the Chinese banking system, warning that “The increasing use of wholesale funds constitutes a systemic risk because it raises interconnectedness in the system, and makes transmission of unexpected shocks more pronounced”.

The size of China is mind blowing so it can be hard to come to terms with some of the statistics. This Bloomberg article from the weekend is worth a read to get a sense of the mindset around property in China: “Fake Divorce Is Path to Riches in China’s Hot Real Estate Market”.

“The only thing I know is that buying property won’t turn out to be a loss,” said Cai, citing two decades of rising prices as proof. “From several thousand yuan a square meter to more than 100,000 yuan. Did it ever fall? Nope.”

Sound familiar?