China: Stability continues, with few surprises in November - NAB

According to Gerard Burg, Senior Economist at NAB, there were few surprises in China’s November data – at least outside international trade.

Key Quotes

“The data point to a continuation of the stability we’ve seen across much of the year, and there was nothing to change our views. China’s economy is forecast to grow by 6.8% in 2017, before easing back to 6.5% next year.”

“China’s industrial production growth eased marginally in November, down to 6.1% yoy (compared with 6.2% in October) – remaining near the trend levels exhibited since the start of 2015. Steel production fell month-on-month to 66.2 million tonnes (from 72.4 million tonnes in October) – the first sign of the impact of proposed capacity closures across 26 northern Chinese cities between November and March.”

“Fixed asset investment was a little stronger in November – rising by 6.3% yoy (compared with 5.8% previously). The decline in producer prices during the month was enough to push real investment back into positive territory – with growth at 0.7% yoy (compared with -0.9% last month). Despite this improvement, real investment remains well below pre-2017 trends. Investment in real estate has held up, albeit growth dipped In November. Chinese authorities have introduced a range of measures to attempt to slow the property sector – however a clear trend is yet to emerge, with sales contracting but construction starts increasing.”

“China’s trade surplus was marginally wider in November, with a strong month-on-month increase in exports just outpacing a jump in imports. The surplus totalled US$40.2 billion (compared with US$38.1 billion in October). Imports of iron ore where surprisingly strong – given weaker output of crude steel (related to capacity closures that will persist until March next year). The underlying trends in China’s export data remain impacted by historic distortions – which overstate the levels between 2012 and 2016. A strong increase in the value of exports to Hong Kong – well above the levels typically reported by Hong Kong Customs –potentially indicates a fresh wave of false invoicing during the month.”

“Retail sales growth picked up a little in November – with consumer inflation softening during the month, this pushed the value of real retail sales back to 9.0% yoy (from 8.6% yoy previously). Consumer confidence has been climbing higher since the recent lows of May 2016 and pushed up again in October to 123.9 points (from 118.6 points previously). This is the highest level recorded since September 1993.”

“For the first eleven months of 2017, new credit issuance totalled RMB 18.2 trillion, an increase of 12.8% yoy. Bank loans comprise the largest share of this lending, in part reflecting tightening regulations in the financial sector, which has forced off-balance sheet activities back to traditional channels.”

“China’s monetary policy has remained stable – with the 7 day Shanghai Interbank Offered Rate (Shibor) continuing to trend around the 2.8% mark. In the short term, we expect further stability in terms of monetary policy – which the People’s Bank of China describes as ‘prudent and neutral’. Given a focus on deleveraging, we argue that there is minimal downside risk to rates, while pressure on the currency and capital flows related to rate rises from the US Federal Reserve next year could see rates gradually move higher.”