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World Economy

OPEC Monthly Oil Market Report – November 2017

23

In 3Q17 the moderation of the headline GDP growth rate reflected a downturn in secondary sector output

covering industry and construction, which slowed from 6.1% in 1Q17 and 2Q17 to 6.0% in 3Q17. Services

growth reaccelerated to 8% y-o-y following two consecutive quarters of decline in 1Q17 and 2Q17, owing to

robust growth in transportation, information, software, and leasing services, according to the monthly index of

service sector growth, which grew 8.3% in the first three quarters.

The

Chinese Communist Party's 19th Party Congress

concluded on 24 October 2017 with the formal

election of the party's Executive Committee and it’s Standing Committee. Beijing says it is planning to pay

less attention to the economic growth side of the equation in its struggle to balance rapid development

versus the increasingly serious environmental problems. By de-emphasizing numeric goals, the government

will have more room in managing the economy.

In terms of China’s monetary policy,

money supply

growth declined in September to 9.2% y-o-y, still above

GDP growth, but much lower than the 10-year average.

Chinese

nonfinancial corporate debt

-to-GDP declined from 99.2% in 2016 to 94.5% in 3Q17. The recent

credit tightening has reduced flows to non-bank financial institutions and investment products, but the impact

on overall non-financial sector debt has been modest so far.

Domestic economy debt

increased from

204.2% of GDP in 4Q16 to 226.8% in 3Q17. Nonfinancial corporate debt accounts for around 40% of total

nonfinancial sector debt, but its growth rate has slowed down to 5% y-o-y in the 1H17. However,

household

debt

has expanded rapidly, rising 11% y-o-y in 1H17, while China recorded government debt equivalent to

46.2% of the country's GDP in 3Q17.

Graph 3 - 25: China’s money supply (M2)

Graph 3 - 26: China’s outstanding debt ratios

by sector

China’s foreign reserves

have increased back above US$3 trillion, and capital outflows have stabilised in

1H17. The Chinese yuan has appreciated by 3.5% against the US dollar in 1Q17, 2Q17 and 3Q17. However,

the real exchange rate (RER) against all of China’s trade partners has continued to depreciate. Despite an

increase in capital outflows in 2016-2017 and the resulting devaluation, the Chinese RER is still significantly

above its average for the last 10 years. In general, the exchange rate has appreciated significantly since

2007, and the current account balance has declined substantially. This to a large degree reflects the growing

focus on economic expansion through higher domestic demand and a more consumption-oriented economy

with a lower savings rate.

China's

trade

surplus fell sharply to $28.47 billion in September from $40.94 billion in the same month a year

earlier. It was the smallest trade surplus since March, as imports jumped 18.7 % y-o-y to $169.79 billion,

accelerating from 13.3% a month earlier. Exports rose at a slower 8.1% to $198.26 billion.

8

10

12

14

100

120

140

160

180

Jan 15

Apr 15

Jul 15

Oct 15

Jan 16

Apr 16

Jul 16

Oct 16

Jan 17

Apr 17

Jul 17

% change

CNY bn

Chinese money supply (LHS)

% change y-o-y (RHS)

Sources: People's Bank of China and Haver Analytics.

226.8

94.5

46.2

0

100

200

300

400

500

1Q 15

3Q 15

1Q 16

3Q 16

1Q 17

3Q 17

Household debt

Nonfinancial corporate debt

Domestic economy debt

Sources: China National Bureau of Statistics and

Haver Analytics.

% of GDP