Economic performance in Oct was underpinned by 1) firming-up consumption spending during national holiday; 2) sustained demand recovery, which lifted manufacturing output and investment; and 3) accelerating real estate investment. As the demand side has been gradually catching up recovery pace with supply side, we think sequential improvement will continue in 4Q. Job market also reported marginal progress, lending support for consumption growth in the future.
- Industrial value-added increased 6.9% YoY in Oct, underpinned by improvement of traditional manufacturing sectors as well as resilient growth of high-tech industries (+6.3% YoY). Most industries, including automobile, equipment, metal products and electrical machinery, recorded accelerating output growth in 10M20 vs 9M20 thanks to resuming downstream demand and rosier export outlook. We expect industrial output will continue expanding in 4Q, lifting annual growth to 2.4%.
- Urban FAI progressed to climb 1.8% YoY in 10M20, after achieving the first positive YTD growth last month. 1) Manufacturing FAI narrowed decline to 5.3%. In addition to pharmaceuticals and computers, communication & electronic equipment, which maintained double-digit growth at 22.8%/12% in 10M20, most other industries continuously narrowed FAI decline thanks to sequential demand recovery in both domestic and overseas markets. 2) Infrastructure FAI accelerated a bit to 0.7% YoY in 10M20. Monthly growth strengthened to 7.3% YoY after a small dip in Sep. We believe infrastructure investment is likely to remain steady in 4Q and achieve 1.5% annual growth. 3) Real estate investment growth held up at 6.3% YoY, driven by both land expenditures and construction spending. However, some leading indicators for real estate investment (namely, new housing starts and land transaction volume) may suggest deceleration in the upcoming year.
- Consumer spending up during national holiday. The prolonged National Holiday, which overlapped with the mid-Autumn Festival this year, set China on the move again after COVID-19. Domestic consumption witnessed rapid recovery. Retail sales increased 4.3% YoY in Oct and +7.1% for the above-designated-size sample. Car sales maintained strong growth momentum, +12% YoY in Oct. Catering services recorded the first positive growth since the beginning of the year, up 0.8% YoY for the entire sample and 6.1% for the above-designated-size sample. This was likely because people increased dining out during vacation trips.
- Risks. 1) Second wave of COVID-19 to dent global economic recovery; 2) weaker than expected domestic demand resumption.
