China's economic growth forecast for this year raised to 7.6%

But 2014 GDP forecast slashed to 7.1%.

According to Barclays Research, it slightly raised its 2013 growth forecast to 7.6% to reflect Q3’s investment- and restocking-led rebound. Nonetheless, Barclays cuts its 2014 forecast to 7.1% on slower potential growth, significant financial and fiscal risks, and an urgent need to adjust the economy’s structure and make structural reforms. 

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We see the neutral monetary policy stance as biased towards tighter liquidity and expect inflation to be below the 3.5% target.

Recent economic indicators have surprised to the upside. The jump in industrial production growth to 10.1% y/y in July-August, from 9.1% in Q2, was significant. Fixed asset investment growth reversed six months of mild deceleration and rose to 20.3% y/y YTD in August.

Infrastructure investment again drove the improvement, similar to the GDP rebound in Q4 2012, which proved temporary.

Transport and public utility investment rose strongly at ~35% y/y YTD. Real estate investment growth moderated, though remained a robust 19.3% y/y YTD in August. Export growth improved to 6.1%y/y in July-August from 3.8% in Q2.

In view of stronger activity, we have raised our 2013 growth forecast to 7.6% (from 7.4%, EM Quarterly, June 2013).

This implies growth of 7.7% y/y in Q3, moderating to 7.5% in Q4 as base effects become less favourable. Our earlier q/q forecasts had factored in a pickup in growth momentum in H2, but recent outcomes have exceeded our initial expectations.

The rebound in Q3 reflects inventory rebuilding following significant destocking in Q2, supported by recovering domestic demand and the lagged effect of the rapid credit expansion, as the government shifted policy focus to ‘stabilising growth’ in early July.

Stronger external demand amid better US and euro area economy also helped.