Sat, Oct 16, 2021 @ 12:32 GMT

China Watch

China’s GDP Growth Missed Consensus. Strong Activity Data Support Renminbi’s Outlook

The latest set of China's macroeconomic data is mixed in the headline. GDP growth in the third quarter came in below market expectation. However, major indicators such as industrial production, retail sales and fixed asset investment all beat consensus, confirming recovery is underway. Against this backdrop, we expect PBOC...

China’s Inflation Weakened as Growth in Food Price Decelerated. Subdued Core CPI Evidenced Domestic Economy Not Yet Out of the Woods

China’s headline CPI moderated to +1.7% y/y in September, from +2.4% a month ago. This has missed consensus of +1.9%. The weakness was mainly driven by pork inflation which slowed to +25.5% y/y, from +52.6% in August. This contributed about 0.7 percentage point to headline CPI’s moderation. Fresh vegetable...

PBOC Moves to Curb Renminbi’s Strength

PBOC announced over the weekend to lower the FX risk reserve ratio for forward foreign exchange sales from 20% to 0, effective October 12. The move is likely a response to the strength in renminbi (a.k.a. RMB, CNY). The central bank pledged to “maintain the flexibility of the RMB...

PMIs Suggest China’s Recovery Remained Intact in September. Yield Differential to Support CNY

The latest economic indicators show that China’s economy continued to recovery in September. NBS’ official manufacturing PMI climbed +0.5 point higher to 51.5 in September, beating consensus of 51.3. The non-manufacturing PMI also increased to 55.9 from 55.2 in August. The composite index gained +0.6 point to 55.1 last...

Upbeat August Chinese Data Suggests PBOC to Leave Rates Unchanged for Longer

The latest set of macroecononmic indicators in China suggests that economic activities surprised to the upside in August. Growth in industrial production accelerated while retail sales gained first the first time since February. Better-than-expected data in August signals that it is less likely for PBOC to cut interest rates. Industrial...

Subdued Core CPI and Contraction in Imports Suggest It Takes Time to Revive China’s Domestic Demand

Headline CPI moderated to +2.4% y/y in August, from +2.7% a month ago. High base and softened growth in food inflation was the key reason for the slowdown. Food price rose +11.2% y/y, decelerated from +13.2% in July. This was mainly driven by the sharp moderation of pork inflation...

Sharp Rise in Manufacturing PMI Signals that PBOC will Keep the Powder Dry for the Month

China's manufacturing PMI (by Caixin) rose to almost a decade high of 53.1 August, from 52.8 a month ago. This indicates that China’s manufacturing activities have been expanding over the past 4 months and the rebound has accelerated. The accompanying report noted that output and new orders showed biggest...

PBOC’s Restraint Monetary Policy will Continue to Support CNY vs USD. US-China Tensions as Major Downside Risk

Renminbi (a.k.a. RMB, CNY) has strengthened against US dollar over the past 3 weeks. While the broad-based USD weakness is the key reason, PBOC's neutral policy action over the past months has also led to renminbi's appreciation. We expect the phenomenon would persist, supporting renminbi, in coming months. PBOC announced...

China’s Retail Sales Shrank Further, Evidencing Weak Domestic Demand

The latest set of macroeconomic data suggests that the pace of recovery in China remained slow, as a result of flooding and second wave of coronavirus outbreak. Improvement industrial activities decelerated, while retail sales continued to shrink. Weak domestic spending was evident in subdued core CPI released earlier this...

China’s Trade Surplus Widened in July, Trade Deal Review Next Week In Focus

China’s trade data surprised to the upside in July. This was mainly driven by strong exports, offsetting decline in imports. Exports gained +7.2% y/y in July, following a 0.5% increase a month. This has beaten consensus of a -0.6% drop. From a month ago, exports rose +5.7$, after climbing...

China’s Economy Continued to Improve in July, but Pace Varied Across Sectors

China’s official PMI report reveals that economic activities continued to expand in July. However, the pace of recovery varied across sectors. Manufacturing and construction activities improved faster than expected, thanks to better overseas demand government’s stimulus measures. However, the services sector was dragged as household demand remained weak. Although...

PBOC Left Policy Rate Unchanged for Three Months, Affirming Targeted Monetary Easing Stance

PBOC has left the policy rate, the 1-year loan prime rate, at 3.85% in July. The 5-year loan prime rate also stays at 4.65%. The decision has been widely anticipated, as the medium lending facility (MLF) rate, the guidance rate for the LPR, was also kept unchanged at 2.95%...

China Recorded Strong Recovery in 2Q20 but Domestic Demand Remained Weak. Risks Skewed to Downside in Second Half

GDP expanded +3.2% y/y in 2Q20, beating consensus of +2.4%. From a quarter ago, the expanded jumped+11.5%. Concerning major macroeconomic indicators in June, industrial production (IP) rose +4.8% y/y in June, in line with expectations and accelerating from +4.4% in May. Urban fixed asset investment (FAI) declined -3.1% y/y...

China CPI Picked Up Due to Temporary Food Price Increase, Unlikely Derail Easing Monetary Policy Stance

Headline CPI improved further to +2.5% y/y in June, from +2.4% a month ago. This came in line with market expectations Core CPI (excluding food and energy) eased to +0.9% y/y, from +1.1% in May. While staying in the negative territory, PPI improved to -3% y/y in June, up...

PBOC to Ease Less Aggressively as Debt Problems Intensify after Months of Liquidity Injection

The phenomenon of rising interest rates since early May appears contradictory to Chinese government’s commitment to maintain “liquidity at a reasonably ample level”. PBOC's leaving of the loan prime rate (LPR), China’s policy rate, unchanged in May and June has fueled speculation about a shift in monetary policy stance....

China’s Inflation Declined to Lowest in Over a Year; Trade Data Showed Weakness in Domestic and Global Demand

Headline CPI slowed further to +2.4% y/y in May, from +3.3% a month ago. The market had anticipated a milder drop to +2.7%. The reading is the lowest since April 2019 and the first time below +3% since August 2019. Food inflation continued to ease significantly. Specifically, growth in...

PBOC Pauses in Rate Cutting. Outlook Remains Expansionary amidst Global Demand Uncertainty and Renewed Trade Tensions

PBOC this morning announced to leave the loan prime rate (LPR) unchanged at 3.85%. While this had been widely anticipated, it should not be interpreted as a signal of unwinding monetary stimulus. We believe the pause allows the central bank some time to assess the impact of previous easing...

More Stimuli Needed to Support China’s Gradual Economic Recovery

Industrial production (IP) expanded +3.9% y/y in April, beating consensus of +1.5% growth and a -1.1% contraction in the prior month. The strong recovery was mainly driven by the low base effect. Production of automobile, and machinery and equipment contributed the most to the April recovery. These sectors were...

China’s Inflation Slowed Further in April, Giving Room for Further Easing

Headline CPI eased to +3.3% y/y in April, from +4.3% a month ago. This also marked a two-percentage-point fall from January’s peak. While the major growth driver remained food price, it has been decelerating as the corovavirus outbreak has hurt demand. Food price gained +14.8% y/y last month, easing...

What to Expect from CCP’s Two Sessions?

After two months' delay, the long-awaited “two sessions” will be held in two weeks’ time. The National People’s Congress (NPC) is scheduled on May 22 while the Chinese People’s Political Consultative Committee (CPPCC) is scheduled on May 21. The meetings this year have symbolic meaning from the perspective of...