Highlights:

• China’s Q3 2021 GDP growth diminished to 4.9% yoy and 0.2% qoq. The very weak growth dynamics reflect the multiple headwinds over the quarter, including Covid-19 lockdowns, power outages, the real estate sector woes and regulatory tightening measures.
• September data releases revealed the marked hit from power cuts on industrial production. Property investment slowed about 2 pp to 4% yoy. Retail sales were soft but surprised on the upside compared to the consensus forecast as Covid-19 lockdowns eased. Export remained strong.
• Looking ahead, we expect the Q4 yoy growth rate to recede further while quarterly growth dynamics could im- prove a bit, provided Covid-19 lockdowns remain under control and power outages can be minimised. The PBoC recently pledged orderly lending to all sectors, including property and power supply. Nevertheless, more real estate firms are likely to report liquidity problems. Generally, monetary policy has become more difficult against supply shortages. We continue to expect targeted measures (but no broad-based reflation cycle) and stick to our view of a RRR cut as a reassuring signal (albeit with less confidence now). The PBoC’s main policy tool will be liquidity management.

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