The key risks to the Chinese growth story are a continued sharp slowdown in property investment, higher-than-expected inflation, and weak export demand, says Deutsche now expecting 7.3% GDP growth this year and 7% in 2015, down from a previously estimated 7.8% and 8%, respectively.
In more bad news for an already-weak global economic recovery, China's GDP growth will slow to 3.9% over the coming decade as productivity gains evaporate and Beijing fails to push through necessary reforms, says the Conference Board.
Foreign companies, says the report, should realize China is in "a long slow fall in economic growth ... The competitive game has changed from one of investment-driven expansion to one of fighting for market share.”
Putting finer numbers on the forecast, the Conference Board sees economic growth averaging 5.5% from 2015-2019 (vs. last year's 7.7%), and slowing further to 3.9% between 2020-2025.
China could reverse the slowdown with market-related reforms, says the CB, but the group is skeptical such changes - sure to cause short-term growth and political pains - will be made.
China is due to report Q3 GDP tomorrow, in what could turn into fresh panic over the state of the global economy.
The economy is forecast to have grown 7.2% in the July-September period, the slowest pace since the first quarter of 2009 and down from 7.5% in the previous three months.
Over the weekend, media outlets reported that the People's Bank of China is planning an injection of about 200B yuan ($32.7B) into some national and regional lenders to keep liquidity ample and bolster growth.
According to banking executives in the know, the PBOC is set to inject up to ¥200B ($32.8B) into roughly 20 large national and regional Chinese banks amid worry the country will miss its GDP growth target of 7.5% this year.
This would follow last month's move which pumped ¥500B into the five major state-owned banks. The funds, naturally, are expected to be lent out to those sectors deemed important by Beijing.
Big Mama's (as the central bank is known locally) stimulus measures thus far don't seem to have done a lot, and word is it's lack of demand rather than a shortage of credit which is holding lending and the economy back. Economists say these liquidity injections are less than meets the eye, and what's really needed to boost the economy are rate cuts.
During a three-day visit to Moscow that ended yesterday, China and Russia signed 38 new deals, including a big expansion in Russian gas sales to China; Russian Pres. Putin sealed a $400B gas contract with China in May, but the fresh deal reportedly would double that (OTCPK:OGZPY).
New projects include a reported $10B Chinese commitment to upgrade Russia's railroads, a "strategic partnership" between Russia's Rosneft (OTC:RNFTF) and China's CNPC (NYSE:PTR), joint development of a long-haul passenger jet, and a deal to open a yuan-ruble swap line worth $24B in an apparent bid to reduce dependence on the U.S. dollar.
It's a golden opportunity for China to leverage Russia's political problems with the West and nail down long-term oil and gas contracts at bargain prices, experts say.
Factory gate prices (PPI) slumped 1.8% vs -1.2% and -1.6%. Producer prices have been dropping since February 2012, brought down by declining commodity costs, overcapacity and falling demand.
Inflation is well below the government's target of 3.5%, giving it to room to ease if it wants to. However, BNP economist Richard Iley is concerned about the numbers, which don't yet take in the full impact of sliding oil prices.
"You got falling oil prices, falling house prices, excess capacity in the industry and an appreciating currency," Iley says. "So everything is pointing to deflation getting a whole lot worse before it can get better," he added.
Chinese exports accelerated to +15.3% on year in September from +9.4% in August and blew past forecasts for a rise of 11.8%.
Imports recovered to +7% from -2.4% and vs consensus of -2.7%.
China's trade surplus dropped to $31B from $49.83B and missed expectations of $41B.
The positive figures provide some cheer amid concerns about a slowdown in the economy, especially in the property sector, although the figures aren't wholly reassuring.
"Today's data is less good news than it appears," says RBS economist Louis Kuijs. "It suggests that China's export growth is holding up. However, the important caveat coming from the breakdown of the import data suggests that demand growth in China’s own economy remains weak."
For example, the growth in imports has been heavily driven by the processing and re-shipment of goods such as the iPhone 6.
Chatter about the exit of long-serving Zhou Xiaochuan isn't new, but speculation is rising, reports the WSJ, suggesting Xi-Jinping is considering replacing Mr. Zhou as part of a wider reshuffle as economic reforms are debated. Zhou was named to a 3rd term by Xi in March 2013 despite his having passed the official retirement age of 65.
Zhou has been a big proponent of market reforms, including liberalizing interest rates, a stance some in Chinese leadership aren't fans of. His removal could be a sign momentum for reforms is slowing. "Everybody seems to be interested in talking about reform, but they really fear what they are professing to love," said Zhang Xiaohui, the head of the PBOC's monetary-policy department a few months back.
Leading the list as a replacement is Guo Shuqing, a former banker and top securities regulator who is currently governor of Shandong.
Andrew Tilton and team expect Beijing to cut its GDP growth target to 7% in 2015 from 7.5% this year, "in order to limit further accumulation of financial risks and reduce pressure for policy stimulus."
There are three factors that contribute to economic growth, says Goldman, and all three - labor growth, capital growth, and technological advance - have their speediest gains behind them.
Goldman also cuts its outlook for Hong Kong, now expecting 2.9% GDP growth in 2015 vs. an earlier forecast of 4.4%.
Shanghai climbed 1.5% overnight, while the Hang Seng fell 0.4%. FXI +1.5% remarket
The preliminary HSBC PMI for China rose to 50.5 in September from 50.2 in August. Forecasts had called for a decline to 50.0. It's a mixed picture, says HSBC's Hongbin Qu, noting improvement in new orders and new export orders, but further declines in employment, and intensifying disinflationary pressure.
The Shanghai Composite rose 0.9% overnight, with a gauge of industrial shares (NYSEARCA:CHII) up 1.3%.
Don't expect any major policy moves out of Beijing to counter the recent weak string of economic data, says China Finance Minister Lou Jiwei, dampening rising speculation something big - maybe a rate cut - was coming.
Shanghai fell 1.7% overnight, with Hong Kong lower by 1.4%.
Signaling growing concern over the slowing economy, the PBOC overnight cut the 14-day repurchase rate by 20 basis points to 3.5%. This follows the previous day's $81B cash injection into the nation's 5-largest banks.
"This is a significant policy signal," says Liu Dongliang from China Merchants Bank. "The chances of a benchmark interest rate cut are rising because the central bank is clearly guiding interbank rates lower now."
The latest sign of the economic slowdown was a report last night showing property prices sliding for a fourth straight month.
Shanghai was higher by 0.35% overnight, while the Hang Seng fell 0.85%.
The move percolated somewhat positively through Asian equity markets overnight, but fell short of something more sweeping - say a cut in interest rates - out of Beijing. Some warn the move won't do a whole lot as bank liquidity isn't the issue, but instead slow loan demand from businesses and consumers.
The PBOC's action is in the form of 3-month, low-rate loans to banks, according to a bank executive briefed on the action. While there are no explicit conditions attached to the money, says the executive, the PBOC wants to see credit channeled into areas Beijing's central planners have deemed important to the economy.
Among the recent evidence pointing to a slowing economy: Industrial production growth hit a six-year low in August, and foreign direct investment hit a four-year low.
A four-year low in foreign direct investment - which fell 14% Y/Y in August to $7.2B - makes for a convenient excuse for Shanghai's 1.8% decline overnight. Hong Kong fell 0.9%. Combined with the slow economic data is a continuing rush of IPOs which investors fear will suck up funds - eleven more were approved yesterday.
FDI's 14% drop in August follows June's 17% decline - it's the first back-to-back double-digit losses for the gauge since 2009.