Chinese markets are rallying as the
country’s economy demonstrates signs of improvement. While the latest data
offers some optimism, significant hurdles persist. Octa Broker analyses the
situation and discusses the potential implications for the People’s Bank of
China’s upcoming interest rate decision.

China has just released a slew of
macroeconomic statistics. Although it generally looks better than previously,
the major risks and challenges remain in place. However, the market’s reaction
has generally been positive so far. Overall, it is good news for the Asian
economies, but the trend is not guaranteed to continue.

Why
this data is important

China is the world’s economic
powerhouse. Depending on the calculation methodology used, it is either the
world’s first or second-largest economy. In 2023, its Gross Domestic Product
(GDP) almost reached the $25 trillion mark, underscoring its importance as a
major export and import market for the world in general and the Asian nations
in particular. Indeed, according to the Wilson Center, a U.S. think-tank, China
is a top trading partner to over 120 countries. For
example, in 2022, almost a quarter (22.6%) of
all Indonesian exports went to China, while
Malaysia directed some 14%
of its goods and services to the country. The dependence is even more
pronounced when it comes to imports, with Indonesia and
Malaysia relying on China for 28.5% and 21.3% of their
imports, respectively. These figures highlight the strong economic influence
China has on the regional economies.

Equally, because China is also a
major importer of pretty much every commodity in the world, its economic health
and the growth rate of its aggregate demand can have a substantial impact on
prices, especially that of crude oil.

What
does the latest data show

China’s economy accelerated in the
third quarter (Q3), data showed on Friday, with GDP expanding by 0.9%
quarter-on-quarter (q-o-q) from 0.7% in Q2, but the year-on-year (y-o-y) growth
rate slowed to 4.6% from 4.7% in Q2. On a year-to-date (y-t-d) basis, GDP
expanded by 4.8%, still below the government’s official target of 5%.
Generally, the data slightly missed the 1.0% q-o-q growth rate expected by the
market, but there were still positive indicators within the data set. Retail
sales increased by 3.1.% y-o-y in September, up from 2.1% in August, the
unemployment rate fell to 5.1% (from 5.3%), while industrial output grew 5.4%,
beating expectations for a 4.5% rise.

‘Among
all the monthly figures released today, the highlight is a surge in industrial
output, much better-than-expected retail sales and a drop in unemployment. The
data clearly indicates that perhaps the government’s stimulus measures are
beginning to work,’ said Kar Yong Ang, a financial market analyst at Octa Broker.
Indeed, weak domestic demand induced by rising unemployment and a property
crisis was the main reason why the People’s Bank of China (PBoC) cut its
benchmark lending rates last July. The latest positive developments might offer
some hope to policymakers as they work to revitalise the faltering economy in
the closing months of the year.

Still, the economy needs to
accelerate further if it is to reach the government’s official growth target of
5% in 2024. ‘Today’s reports were
slightly better than the previous set of data released in July, but they do not
indicate a significant turnaround in the economy. The risks are still present,
the major one being deflation and the uncertainty surrounding the U.S. elections,’
said Kar Yong Ang. Indeed, China’s exports and imports both slowed
significantly in September, indicating that Chinese manufacturers may be
reducing prices to clear inventory in anticipation of new tariffs imposed by
various trading partners, not least by the United States (especially if Donald
Trump becomes president). Furthermore, deflation is further fueled by an
unbalanced economy, with domestic consumption falling behind industrial output.
This might prompt the PBoC to implement additional interest rate cuts on
Monday.

How
did the markets respond

Chinese markets have reacted quite
favourably to the latest economic data, with the CSI 3000 Index up more than
5.5% and the Shanghai Composite Index rising by more than 4%. Meanwhile,
Chinese offshore yuan strengthened to 7.12, although the short-term trend in
USDCNH remains bullish. As for the Asian currencies, the Malaysian ringgit
(MYR) was relatively flat, while the Indonesian Rupiah (IDR) continued to
appreciate, with USDIDR falling below 15,500. ‘In case, PBoC treats the latest economic data as not good enough to
pause its monetary easing campaign, ringgit and rupiah may continue to
appreciate but only slightly as the main driving force for them still is the
U.S. monetary policy and the upcoming U.S. elections,’ said Kar Yong Ang, a
financial market analyst at Octa Broker.

About
Octa

Octa is an
international broker that has been providing online trading services worldwide
since 2011. It offers commission-free access to financial markets and a variety
of services used by clients from 180 countries who have opened more than 52
million trading accounts. To help its clients reach their investment goals,
Octa offers free educational webinars, articles, and analytical tools.

The company is involved in a
comprehensive network of charitable and humanitarian initiatives, including the
improvement of educational infrastructure and short-notice relief projects
supporting local communities.

Since its foundation, Octa has won
more than 70 awards, including the ‘Best Forex Broker 2023’ award from
AllForexRating and the ‘Best Mobile Trading Platform 2024’ award from Global
Brand Magazine.