INSTANT VIEW: China Q3 GDP growth rises to 8.9 percent

BEIJING (Reuters) - China's annual GDP growth accelerated to 8.9 percent in the third quarter from 7.9 percent in the second quarter as all sectors of the economy, apart from exports, performed strongly.

The figures were released a day after the cabinet signaled a shift toward policy normalization by saying that recovery in the world's third-largest economy had now been 'consolidated'.

KEY POINTS:

-- Economists had forecast 8.9 percent Q3 GDP growth yr/yr

COMMENTARY:

LI JINGDE, VICE GENERAL MAGAGER OF CINDA SECURITIES:

"The sizable drop in PPI indicates that the economy is indeed reviving but the recovery has not exceeded market expectations,

"I think CPI could turn positive by the end of this year, possibly in December. This is mainly because commodity prices will keep rising in the fourth quarter and early next year, which will lift prices of products in other industries.

"The GDP growth rate might rise to 9.3-9.5 percent in the last quarter, and there's no doubt that China will hit its target of 8 percent for the whole year. But I think the growth rate might drop in the second and third quarters next year."

YU SONG AND HELEN QIAO, ECONOMISTS AT GOLDMAN SACHS, IN A NOTE:

They said implied sequential quarter-on-quarter annualized growth in GDP was around 10.2 percent in the third quarter, down from 16.5 percent in the second quarter.

"Due to policy measures the government implemented since July that have an evident tightening impact, especially the credit control measures implemented by the CBRC, the slowdown in sequential GDP growth has been more significant than we previously expected. However, the sequential GDP growth level is still respectable and is slightly above our estimated potential growth level.

"On a sequential basis, both CPI and PPI inflation have been out of negative territory over the past three months. Using this criteria, we believe deflation is probably behind us now.

"On the other hand, we see limited upside inflationary pressures as long as the government is able to continue to control money and credit supply at the current pace."

BRIAN JACKSON, STRATEGIST AT ROYAL BANK OF CANADA IN HONG KONG, IN A NOTE:

"The Chinese economy has taken off, but it is flying on one engine. China's recovery has been impressive but it has been heavily reliant on government-directed investment funded by aggressive bank lending.

"To keep the economy moving at a fast pace we need to see a more broad-based recovery. Stronger external demand is the most likely source of additional support, with last week's trade data suggesting that the outlook for exports is improving. This should provide scope for Beijing to start tightening policy gradually from early 2010 while still keeping growth at relatively high levels."

GAO SHANWEN, CHIEF ECONOMIST AT ESSENCE SECURITIES IN BEIJING:

"GDP growth is at the lower end of our expectation but is mostly in line with the market consensus. It sends a clearer signal that the recovery is on a solid footing.

"The data could trigger some policy shift in the coming months, but personally I think the government will mainly concentrate on fine-tuning current macro policy rather than making any aggressive moves this year like hiking interest rates or reserve requirements.

"I think the yuan will start a mild appreciation in the first half of next year, as the trade picture is getting better and better. But the currency will remain relatively stable this year, because the government won't allow a rapid appreciation before exports have fully recovered."

SEBASTIEN BARBE, SENIOR ECONOMIST AT CALYON IN HONG KONG:

"There are no surprises in the data, except maybe investment and industrial production on the upside, which shows the boom in China is due to stimulus.

"I think it is now time to move to a more neutral bias on monetary policy. I think they will do four things:

"1. Cap credit growth. So, in the next few months bank lending will slow.

"2. Increase the reserve ratio, at the beginning of next year.

"3. Hike interest rates, but that is more symbolic and there is not such a hurry.

"4. Resume forex appreciation. I think they will do this second after capping credit growth, at the beginning of next year. There won't be a big bang, they'll go back to appreciation as before the crisis of about 6 percent a year. So the yuan will be at 6.50 to the U.S. dollar by the end of next year."

WANG HU, AN ANALYST AT GUOTAI JUNAN SECURITIES IN SHANGHAI:

"Good figures. Economic growth has picked up very swiftly. There's no doubt that GDP will hit 8 percent for the whole year. We expect it will be 8.5 percent and above 10.5 percent for the whole of 2009 and the fourth quarter, respectively.

"The yuan will face more upward pressure next year and the pace of its rise against the dollar will accelerate. We expect the yuan to reach 6.7 by the end of 2010.

"Interest rates are likely to remain steady during the fourth quarter. Looking at 2010, moves in U.S. interest rates will play a big role."

XUE HUA, ANALYST AT MERCHANTS SECURITIES IN SHENZHEN:

"The data match market expectations, and they're good."

"There won't be an immediate shift in policy, I think, as the CPI is still negative, but some changes are possible, such as a tightening of credit lending. An appreciation of the yuan won't happen so quickly"

LINKS:

-- See the National Bureau of Statistics website at www.stats.gov.cn. The report might not be immediately available.

MARKET REACTION:

-- China's benchmark Shanghai Composite Index was down 0.2 percent at 0230 GMT. It was broadly flat when the data came out.

-- The Australian dollar briefly slipped vs. the U.S. dollar on the news but then regained its poise.

BACKGROUND:

-- Since 1978, China has averaged GDP growth of close to 10 percent a year, but the government has had to ramp up spending and shift to extremely loose monetary policy to put the country on track to meet its official target of 8 percent growth in 2009.

-- That goal looked wildly out of reach at the start of the year. But the government's aggressive fiscal stimulus and record bank lending have boosted activity and confidence alike, making it a certainty now that full-year growth will surpass 8 percent.

(Reporting by Aileen Wang, Sally Huang, Susan Fenton, Michael Wei Kirby Chien; Editing by Alan Wheatley)