In this video Yvette Roper of TradingFloor.com interviews Andrew Robinson, Market Analyst for Saxo Capital Markets in Singapore, about the challenges for China’s economy - growth and inflation wise -and the impact of the pending leadership handover. He also comments on the recent fall in the dollar-renminbi currency pair and the role of the People’s Bank of China in all of this.

China’s economy grew an expected 7.4 percent in the third quarter. Though the rate is still below Chinese authorities’ official target of 7.5 percent growth for all of 2012, the year to date increase was 7.7 percent thereby indicating that perhaps there is little reason to be overly concerned about growth for the world’s second-largest economy.

“The stimulus measures are slowly filtering through into the economy and perhaps authorities have done enough to allow a bottoming or even a turnaround in the economy,” says Andrew.

Of greater concern for authorities is inflation and the National Statistics Bureau recently urged caution in this area. The main concern is that money being pumped into global economies could force global inflation issues.

Expecting any intervention before the end of the year though is unlikely, due to the pending leadership change and expectation of inaction. This factor alone is possibly enough to indicate that China will reach its growth goals and that the economy at the end of the year will be in a better state than it is at the moment. “Mr. Wen will not want to be seen as passing a lame duck to his counterparts,” says Andrew. “Generally he is positive he has done enough to at least find a bottom for the Chinese economy.”

Golden Week impact on retail sales
Recent retail sales data further bolstered China’s growth outlook. Retails sales for September rose 14.2 percent year on year and were up 14.1 percent year to date. The data may however have been skewed by excessive spending in the run-up to the national holiday in the first week of October.

The role of private consumption in driving growth though is still inadequate. “Compared to 10 years ago domestic consumption as a contributor to GDP is still lower than it was then, so there’s a bit more work to do on that front,” says Andrew.

USDCNY situation
The dollar-renminbi cross is down 4½ big figures in the last week. The reasoning for this could possibly be the effect of the pending US election and related issues about labeling China as a currency manipulator. It is quite possible that this alone is preventing the People’s Bank of China from intervening. “Some say the tail risks for the Chinese economy are diminishing so we are seeing a lot of domestic on-shore US dollar selling and that is putting a lot of pressure on the currency and the PBOC is maybe willing to stand back and let it fall,” says Andrew.

See more of Andrew's Asian market commentary on TradingFloor.com