Growth continues to be slow but steady

The National Bureau of Statistics has reported that real GDP growth in China's two-track economy eased to 6.8 percent year-on-year in the fourth quarter, making the whole-year growth 6.9 percent in 2015, just shy of the government's target of 7 percent and in line with our expectations.

The growth picture remains two-sided. The real estate construction slump and weak exports continued to weigh on activity and prices in industry, especially heavy industry. The NBS reported that real value added growth in the secondary sector was 6.1 percent in Q4. But we think that the NBS has overstated the real growth of industry in 2015. Based on a bottom up calculation of industry's gross output, we estimate secondary sector value added growth was 4.2 percent year-on-year in Q4.

However, consumption continued to expand robustly, supported by solid wage growth. With real household average income up 7.1 percent year-on-year in Q4, real private consumption rose 7.2 percent on a year ago, supporting light industry and the service sector, where pricing power strongly exceeds that in heavy industry. Nominal value added growth in the tertiary sector remained flat at 11.9 percent in Q4, supporting overall nominal GDP growth of 6.0 percent.