It was a strong quarter for Chinese equities despite a flat month of September.

Some macro factors towards the end of the quarter signalled slightly higher inflation (+1.8%) and a seasonal slowdown in infrastructure and some larger cities target measures to help increases in property prices. The government gave indications that a cut in the reserve-requirement ratio, meaning that banks’ lending to small companies is more liberated. Massive outflows of money took place in China prior to this year due to a weaker US dollar, good economic data and capital controls.

We all know that the massive economic expansion in China in the last 30 days has taken its toll on the environment. The environmental department conducted inspections of 40,000 factories and over half were breaking environmental regulations. These companies were fined and 12,000 officials got disciplined. We saw that China’s production of new-energy vehicles rose by 56% year on year in August, which is indeed encouraging for a country that produces almost 30 million cars per year.

The second half of October will be given over to a fine analysis of the 19th Party Congress and the policy implications of the new Politburo appointments announced.
Promising and brave comments were made by China’s outgoing central bank governor Mr Zhou Xiaochuan, one of China’s most respected reform advocates, that “No country can achieve an open economy with strict foreign exchange controls”.

China started October with nearly a week off for its national day holidays and the Chinese Communist Party will hold its 19th Congress to decide on the next generation of leaders in mid-October.

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