China's rebalancing means take effect

BEIJING - Recent data showing a slowdown in Chinese investment and industrial-production growth could indicate policy-driven macroeconomic rebalancing is taking effect, said Fitch Ratings on Wednesday.

A period of adjustment was always likely before a pick-up in macroeconomic volatility and a smooth outcome is not assumed, said a Fitch report.

However, any sustained rebalancing and a reduction in growth led by credit fuelled investment would diminish the structural vulnerabilities factored into the sovereign credit profile.

Chinese macroeconomic data has indicated a sharp growth slowdown in August, with fixed-asset investment and industrial production growth both recording multi-year lows. Real estate indicators continued to highlight risks of a more sustained correction, with sales growth in volume and value terms declining from 2013. This comes amid a slowdown in credit expansion evident in aggregate financing data for July and August.

Investment and industry data looked weak, while the numbers for consumption indicators including employment and retail sales growth were generally stable, and this points to ongoing resilience in the labor market, it said.

Notably, the September flash HSBC manufacturing purchasing managers' index (PMI), released on Tuesday, surprised analysts at 50.5, conflicting with the generally slower fixed-asset investment and industrial growth figures. However, a sustained trend of solid consumption and moderating investment would signal the economy is moving towards a broader rebalancing that was announced as a key objective of the country's reform agenda in November 2013, the report said.

It forecast that Chinese policymakers will continue to pursue structural adjustment and rebalancing so long as the labor market remains relatively strong.

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