Growth was relatively stable in October. Industrial output was up 6.2% y/y, almost the same as in previous months. Yet key growth drivers weakened. Fixed asset investment was up 5.8% y/y, slightly above the nadir, but lower than the investment price level. So real investment growth is still negative, a key challenge for the future.
Retail sales of consumer goods were up 10% y/y in nominal terms, and 8.6% y/y in real terms. Both were the weakest growth figures of the year. Exports were up 6.9% y/y, declining from Q1 and Q2. We expect exports to continue to slide. Furthermore, the growth rate of industrial export delivery value could dip below zero next year. Imports were up 17.2% y/y, maintaining their fast growth trend, up 2.6 pps from Q3.
Producer prices continue to appreciate. The ex-factory price index of industrial output was up 6.9% y/y, and PPI was up 8.4% y/y. They grew 0.7% and 0.9% m/m, respectively. Among the composition of industrial output prices, industrial processing prices were up 7.6% y/y, a new high.
CPI was up 1.9% y/y, a slight increase, though stable from previous months. By the end of October, M2 was up 8.8% y/y, a new low, reflecting a continuation of monetary tightening.
There have been three major changes to financial regulations. On November 10th, it was announced that the government would relax or eliminate ownership limits in commercial banking, securities, futures, asset management and insurance. The same day, a cabinet-level financial stability committee was established, putting financial stability in an unprecedentedly high position. On November 19th, the Central Bank, together with all other financial regulatory bodies, issued a new guideline to more strictly regulate the asset management businesses.
Financial openness can increase the efficiency of capital allocation domestically, and can further lift the real economy’s productivity, by at least increasing financial competition among financial institutions. The Chinese government has also learned from Western countries’ past financial crisis history, by making financial stability a higher priority, since openness and liberalization are usually accompanied by instability. We view this openness with a prudential regulatory approach as a very positive direction.