USD/CNH stable as China Q3 GDP beats expectations - BBH

USD/CNH is stable around 7.1260 and the Hang Seng China Enterprises Index rose 2.4%. The Central Committee of the Communist Party kicked off its four-day conclave - known as the Fourth Plenum - to set the nation's economic and technological goals over the next five years. Full details of the plan will only be released in March next year, but broad guidance will be offered later this week, BBH FX analysts report.

China's growth holds but consumer spending lags

"China Q3 real GDP is tracking the government's 2025 growth target of around 5%. Real GDP rose more than expected by 1.1% q/q (consensus: 0.8%) vs. 1.0% in Q2 to be up 4.8% y/y vs. 5.2% in Q2. It's worth pointing out that China's growth target is a government-set growth goal used as a policy tool to guide economic/social planning rather than a reflection of underlying supply and demand dynamic."

"As such, the quality and sources of China's growth is more relevant for investors. From that perspective, China's long-term economic health remains weak. Industry (exports and manufacturing) continues to be the main growth engine, while consumer spending is struggling to gain traction."

"In the first nine months of the year, retail sales growth slowed to 4.5% y/y (consensus: 4.4%) vs. 4.6% in August, industrial production was 6.2% y/y (consensus: 6.1%) vs. 6.2% in August, and fixed asset investment unexpectedly shrank -0.5% y/y (consensus: 0.1%) vs. 0.5% in August. Excluding real estate development, fixed asset investment rose 3.0% y/y vs. 4.2% in August. In our view, a gradual revaluation of China's currency could help China stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact."