China: Signs of improvement in real activity – Standard Chartered

Standard Chartered analysts suggest that China’s November growth data has beaten the market expectations with industrial production (IP) growth surging to 6.2% YoY from 4.7% in October, partly on seasonal factors.

Key Quotes

“Services-sector growth edged up to 6.8% y/y from 6.6% prior. The labour market remains resilient, with the surveyed city unemployment rate unchanged at 5.1%. Retail sales growth picked up to 8.0% y/y from 7.2% in October, driven by higher inflation and Singles’ Day sales promotions.”

“Fixed asset investment (FAI) growth accelerated to 5.2% y/y from 3.7% in October on resilient real-estate investment, while infrastructure investment remained soft and manufacturing investment weakened. Overall, growth momentum appears to have improved in November, supporting our forecast of a tentative stabilisation in Q4-2019.”

“The recent Central Economic Work Conference (CEWC) confirmed that the top priority for 2020 is to achieve “a moderately prosperous society”. Furthermore, the ‘phase one’ trade deal between China and the US reduces the tariff drag on China’s GDP growth in 2020. These support our above-consensus GDP forecast of 6.1% for 2020.”

“We expect the government to set a growth target at around 6% for 2020, providing policy support for a slightly higher growth rate. This includes a proactive fiscal policy, with a shift in fiscal support from tax cuts to spending, and an accommodative monetary policy to support expansionary fiscal policy.”

“We expect three reserve requirement ratio (RRR) cuts of 50bps each, or an equivalent liquidity injection through targeted RRR cuts or central bank lending, in the first three quarters of 2020, as well as two 10bps medium-term lending facility (MLF) rate cuts in Q1 and Q2 to facilitate a further lowering of the loan prime rate (LPR).”