China Center Data Flash: Stability Lull Leads to Risk-Curbing Policy Stance—Will It Stick?

Data Flash is a brief interpretive summary of China’s official monthly economic data release. 

• Q3 economic data indicate firming aggregate growth, but again the growth uptick and apparent stability are primarily credit- and debt-growth supported.
• Nevertheless, presumably in anticipation of a relatively stable period in the near term, the central government appears to be switching its policy stance from “pro-growth” to “risk curbing.” This switch is positive for real-economy sustainability (if it sticks), but it is likely to cause increasing volatility in China’s financial markets.
• Debt accumulation in the first three quarters was significantly higher than GDP growth, underlining the ever-mounting debt risks.
• The industrial Producer Price Index (PPI) returned to positive growth territory in September, after being negative since early 2012. PPI growth in September was driven by price rallies in coal and steel. The improving pricing environment also propped up profit growth.