Third-quarter GDP growth numbers on the mainland are expected to remain upbeat as most September economic indicators are expected to show similar growth figures to that of August.

While September export and import growth numbers released last week saw the pace slackening a bit, new loan growth figures delivered a positive surprise and foreign reserves reached an all-time high. Among the economic indicators, industrial output and retail sales are expected to continue their slight improvements from August. Meanwhile, the CPI is likely to rise to a year-high.

Export and import growth has slowed down. According to data released last week, export and import growth moderated to 25.1 percent and 24.1 percent year-on-year (YoY) in September, respectively, with net exports dipping to $16.8 billion. The trade surplus is likely to continue to contract amid yuan appreciation and a further slowdown in exports closer to Christmas.

Seasonal export orders were believed to be a significant contributor to the growth of exports in September while rising international commodity prices are the key driver of the growth in imports.

In the meantime, new loans also surprised on the positive side. The People's Bank of China (PBoC) announced that new bank loans in September rose to 595.5 billion yuan while M2 (total money supply) growth retreated only slightly to 19 percent from 19.2 percent in August. This may trigger tightening policies by way of reaction. The recent required reserve ratio (RRR) hike for six large commercial banks confirms the view that the PBoC will strive to maintain bank loan growth at 7.5 trillion yuan for 2010.

Despite strong growth in retail sales, investments and trade activities, GDP growth in the third quarter may have moderated on a higher comparable base in 2009.

Third-quarter GDP growth is estimated at 9.5 percent YoY, slightly lower than the 10.3 percent YoY in the second quarter, aided by strong consumption, the handsome pickup in exports and sustained fixed asset investment (FAI) growth.

FAI and industrial output growth remains on track, with an estimated growth of 24.8 percent and 14.2 percent YoY in September, respectively, on the back of continued investments in western regions.

Inflation could have peaked in September at 3.6 percent YoY. Wholesale food prices of agricultural products dropped 0.8 percent in September month-on-month (versus a 2.4 percent rise in August), but jumped 9.5 percent YoY (versus a 5.1 percent rise in August). The rise in food prices could have contributed significantly to the CPI.

Meanwhile, retail sales growth is expected to remain strong in September at 18.5 percent YoY, which continues to be supported by wage increases and heightened inflation expectations. The growth momentum will likely continue in the fourth quarter.

We continue to believe that any interest rate hike will not help ease food-price driven inflationary pressure but may instead induce a gush of liquidity inflows, contradicting the rationale behind the recent RRR hike.

The author is an associate director and economist at CCB International Securities Ltd. The opinions expressed here are entirely his own.

(HK Edition 10/19/2010 page2)