In PBOC's latest set money report, China's new renminbi loans rose to RMB 2.03 trillion in January. However, it came in below consensus of RMB 2.44 trillion and RMB 2.5 trillion the same period last year. Although it is usual for new loans to be high earlier in a year as banks front-load their loans for profit maximization, the January figure missed expectations as lending to non-bank financial institutions fell for the month. Outstanding renminbi loans growth decelerated to +12.6% y/y, from +13.5% in December. Medium and long term corporate bank lending, a barometer of corporate sector demand, increased +43.4% y/y to RMB 1.52 trillion, whilst medium- and long-term household loans, mainly mortgage loans, rose to a record high of RMB 0.63 trillion. This suggests that PBOC's recent tightening measures have yet to feed through the housing market. We believe a few months' data would be needed to see the effectiveness of these measures.
China’s economic growth decelerated further in 3Q18, as the impacts of restraining infrastructure investment and trade war surfaced. GDP growth moderated to +6.5% y/y in the third quarter, the slowest since the first quarter of 2009. Growth came in...
China's financial system continues to display fragility and liquidity squeeze. China's 7-day repo rate jumped to 5.5% (close), the highest level since late 2014, on Tuesday, followed by PBOC's injection of RMB 80-90B to the market on Wednesday as some small banks failed to repay debts in the interbank market. Less than a week ago, PBOC raised a range of short-term and medium-term interest rates to reduce financial risks, thought to be a response to Fed funds rate hike. Interbank rates should remain volatile over the coming week, ahead of PBOC's quarterly macro-prudential assessment in late March. Although recent data suggested that the problem of capital outflow eased in February, ongoing interest rate normalization in the US would prolong China's capital outflow problem, sustaining the challenges facing China in the implementation of its monetary policy.
August data further evidenced that China's economic growth has peaked in the first quarter. Following the sharper-than-expected slowdown in growth in July, the latest set of macroeconomic data also surprised to the downside. The moderation was a result of the government's tighter monetary policy in an attempt to curb excessive investment in certain areas, such as real estate. Renminbi's appreciation against US dollar since the beginning of the year probably has weighed on exports. This leads the PBOC to loosen capital control which has been adopted over the past years to prevent renminbi from severe depreciation.
China’s official manufacturing PMI slipped -0.3 point to 51.3 in January, compared consensus of 51.5, as almost all sub-indices dropped during the month. The non-manufacturing PMI added +0.3 point to 55.3, beating expectations of 55, in January. Note that...
China's manufacturing activities contracted for the first time in 11 months, as Caixin/Markit's PMI index suggested. The report shows that the manufacturing PMI dropped -0.7 points to 49.6 in May (a reading below 50 signals contraction), compared with consensus of a milder drop to 50.1. While the sub-indices of output and new business remained in the expansionary territory, but both fell to their lowest levels since June last year. Meanwhile, the sub- indices of input costs and output prices drifted to the contractionary territory for the first time since June 2016 and February 2016, respectively. Meanwhile, the sub-index of stocks of purchases showed renewed decline. The rebound in the sub-index of stocks of finished goods suggested that companies stopped restocking as inventory levels increased.
USDCNY continues to recover after the pair slumped to the lowest level since December 2015 last Friday. The rebound, long-awaited as the broad-based USD weakness has caused the pair to decline over the past 4 months, is facilitated by PBOC’s announcement to remove the requirement for banks to hold the equivalent of 20% of clients' FX forward positions as reserve for a year at 0% interest. For more than a decade, China has been implementing reforms in its currency, with the ultimate goal of achieving a floating exchange rate regime and convertibility for renminbi – a movement widely described as renminbi internationalization. However, this report seeks to explain that the government has only been moving back and forth, without making significant progress in transforming renminbi into a market-oriented exchange rate.
The two key phenomena, tightening in liquidity condition and renminbi strength, in the Chinese market have persisted. Last week, PBOC auctioned RMB 80B of 3-month Treasury deposits at 4.51%, the highest since December 2014. This came in after another auction of 3-month Treasury deposits on August 18, at 4.46%. Higher interest rates signaled that the government is trying to increase the borrowing cost, tightening money supply.
The latest inflation report continues to portray a subdued CPI, high PPI environment in China. Headline CPI improved to +0.9% y/y in March from +0.8% a month ago. The market has anticipated stronger pickup to +1%. Core inflation (excluding food and energy) rose +2% y/y, up from +1.8% in February. The decline in food prices deepened to -4.4% y/y from -4.3% in February. Nonfood inflation improved modestly to +2.3% y/y, up from +2.2% in February. PPI eased to +7.6% in March, from +7.8% in the prior month, compared with consensus of +7.5%. Both seasonal factors and moderation in the commodity price rally were key reasons for the slowdown. Lunar New Year in the first week of February pushed prices higher and absence of such factor was reflected in the March reading. Meanwhile, mining input prices gained +3.7% y/y in March, compared with a +36.1% y/y rally in the prior month. Oil and gas price, gaining +68.5% y/y in the month, was the biggest driver of PPI inflation last month. We expect PPI to stay high in coming months but growth would be more gradual due to strong base effect. Meanwhile, the rally in commodity prices over the past months is seen passing through to downstream CPI.
The Caixin manufacturing PMI for China slipped to 50.8 in November, from 51 in October. The reading also missed expectations of 51. Looking into the details, production and new orders increased at modest rates, while purchasing costs rose sharply. However, confidence towards the business outlook dropped to joint-lowest on record. As the agency noted, the manufacturing sector remained stable for most of November, despite 'some signs of weakness'. It forecast that the economy would remain stable for 4Q17. While growth should improve this year, when compared with 2016, it should decelerate in 2018. By contrast, the official manufacturing PMI rose +0.2 point to 51.8 in November this also beat expectations of a drop to 51.5. Non- manufacturing PMI increased +0.5 point to 54.8 last month. Divergence between official and private PMIs is nothing new. Part of the reason for the divergence is that the official data focus on large enterprises, while Caixin's focus on SMEs. This interpretation appears contradicting this month. Indeed, the official report suggests that SME PMI improved, while that for large companies slipped -0.2 point to 52.9 in November.
China's headline CPI inflation accelerated to +1.5% y/y in May, from +1.2% a month ago. for the first 5 months of the year, CPI has stayed at average of +1.4%, amongst the lowest levels in history. Core inflation steadied at +2.1% in May. Non-food CPI moderated to +2.3% from 2.4% in April. Food inflation remained in contraction but the decline narrowed to -1.6% y/y in May from -3.5% in the prior month. We believe it was the low base that had helped improve the reading. PPI inflation continued to slow, falling to +5.5% y/y in May from +6.4% in April. Weakness in commodity prices is expected to weigh on PPI, sending it lower to around +5% in coming months.
Recent releases in China's November macroeconomic indicators suggest that growth continue to stabilize. Yet, weakness in renminbi means that capital outflow should remain a headache. China's growth in industrial production (IP) improved to +6.2% y/y in November, from +6.1% a month ago. This came in better than consensus of +6.1%. Retail sales expanded +10.8% y/y in November, compared with expectations of +10.2% and +10% in October. Indeed, this is the fastest pace of consumer spending growth so far this year. A key contributor to the upside surprise was auto sales, thanks to government tax incentives. Meanwhile, 'single's day earlier in November also helped boost sales of electronics and telecom products. Urban fixed assets investment gained +8.3% in the first 11 months of the year, unchanged from the year through October. This came in line with expectations.
Ongoing trade war with the US is accelerating the slowdown in growth in China. As such, the monetary policy adopted by PBOC would continue to be accommodative. Echoing the rhetoric of the annual Central Economic Work Conference, PBOC affirmed...
China's economic data beat expectations in February. Headline CPI improved to +29% y/y, beating expectations of +2.5%, from January's +1.5%. On the economic activity barometers, industrial production grew +7.2% y/y in February, exceeding expectations of +6.3% and January's +6.2%....
The official manufacturing PMI data, published by the National Bureau of Statistics, slipped -0.3 point to 49.2 in February. The market had anticipated no change from the prior month. This shows that large corporations in the sector, staying in...
China's latest set of PMI data indicated slowdown in the country's activity growth. The official manufacturing index was reported to have dropped -0.6 point to 51.2 in April, whist the non-manufacturing PMI declined -1.1 points to 54 for the month. The slowdown was broadly based: the 'output' index slipped -0.4 point to 53.8 and the 'new orders' index dropped -1point to 52.3. The 'new export orders' index fell for the first time in 4 months, losing -0.3 point to 50.5, although the three-month moving average remained up. The 'input price' index sank -7.5 points to 51.8. The trend indicates that PPI inflation should have slowed more sharply in April. Recall that the March reading was +7.6% and the February reading was a record higher of +7.8%. The only sub-index that has shown improvement was the 'stock of finished goods' index, which gained +0.9 point to 48.2.
China inflation, both upstream (PPI) and downstream (CPI), surprised to the upside in October. Headline CPI accelerated to +1.9% y/y, from +1.6% in September, beating consensus of +1.7%. Food deflation improved to -1.4% y/y in October, from September's -1.4%, whilst non-food price steadied at +2.4% y/y. Core CPI also steadied at +2.3% last month. PPI stayed unchanged at +6.9%, beating expectations of a slowdown to +6.9%. The set of data indicates gradual but smooth pass-through of inflation (from PPI to CPI), thanks to stable wage growth and improved capacity utilization. Headline CPI has a chance of rising to +2% by year-end and exceeding it in 2018. Note, however, that the upper bound of PBOC's inflation target is +3%.
Recent Chinese economic indicators have been positive. The country surprisingly recorded trade deficit, of RMB 60B, in February. The market had anticipated a decline of surplus to RMB 173B from RMB 355B in January. Imports soared +44.7% y/y while exports gained +4.2% y/y, compared with growths of +15.9% and +25.2%, respectively, in January. The sharp rise uin imports might indicate improvement in domestic demand. China's FX reserve added +US$ 6.9B to US$ 3.01 trillion in February, marking the first increase in 8 months. The market had anticipated further decline for the month. After adjusting for currency valuation effects, the reserves probably increased US$ 19-25B in the month. While this might be the first sign of the effect of China's capital control measures, we expect the government remain cautious as outflow should remain a problem for the rest of year. Note that a reason for the uptick in February was the improved performance of renminbi at the beginning of the year. Further information, including PBOC's FX position and SAFE flow data, is needed to grasp a clearer outlook of the capital flow situation. We remains bearish over renminbi as the Fed's monetary policy normalization program should continue to support USDCNY.
China is on pins and needles as it sees renminbi (Chinese yuan) fall. The government dares not risk massive capital flight for uncertain benefit in exports by depreciating its currency. The apparent increases in FX reserve over the past...
China's trade surplus narrowed to US$40.8B in December from USD44.6B a month ago. From a year ago, exports contracted -6.1% y/y, deteriorating from a -1.6% drop in November, while imports growth decelerated to +3.1%, from November's expansion of +13%. Both contraction in exports and expansion in imports came in worse than expectations. We are concerned that rising oil prices would continue to weigh on the country's balance of payment given China's huge crude oil imports. Released last week, the country's FX reserve was reported to have dropped -US$41B, to US$3.01 trillion, in December. Similar to the past 5 months, the decline was driven by government's selling of foreign currencies to moderate renminbi depreciation