CDI-Neri Macro Outlook

A monthly insight into the macro-economic environment in China.

March 24, 2018

Growth Targeted at About 6.5%

Prime Minister Keqiang Li announced during a March 5th address to the People’s Congress of Beijing that China’s growth target for 2018 would be about 6.5%, the same as in 2017, when growth reached 6.9%. The yuan will be “basically stable” at a reasonable level, Li also predicted. More local government debt will be cut, but not at the cost of infrastructure. Moreover, reducing financial risk will be key for the regulatory agency, an emphasis further confirmed by new Central Bank governor Gang Yi, who took office after Xiaochuan Zhou’s 13 years of service.

Only three days after the People’s…

December 26, 2017

Narrowing the External Imbalance

Growth remained stable in November, with industrial output up 6.1% y/y. Fixed asset investment excluding agriculture was up 6.3% y/y, up 0.5 pps from October, and up 2.4 pps from its August nadir. However, the current investment growth rate is still lower than investment goods’ price growth rate, indicating that real investment growth is still negative, by -0.2% y/y.

National fiscal revenue fell -1.4% y/y, turning negative for the first time this year. Since current investment strength is mainly government driven, the fall of fiscal revenue will constrain a possible investment rebound. Retail…

February 26, 2017

Indicators Signal Good Prospects

Due to Chinese New Year, many statistics are still not available, making our analytical task more difficult. But one notable policy change is that monetary policy reversed its 2016 loosening trend, and shifted into tightening. We also expect this to be the trend for 2017. M1 rose 14.5% y/y, continuing the declining trend it began in August, decreasing 1 pps per month on average, and rising 20% y/y, after correcting for the New Year’s holiday effect. M2 rose 11.3% y/y, its lowest level since last year.

Loan growth has hit a new low. Chinese yuan loans from financial institutions rose 12.6%…

January 28, 2017

Facing the Trade Uncertainties

GDP in 2016 rose 6.7% y/y, down 0.2 pps from 2015, reaching the lowest yearly level in China. The quarterly growth was highly stable, with first three quarters rising 6.7% and the fourth quarter rising 6.8%. In 2016, fixed asset investment rose 8.1%, down 1.9 pps from 2015. From the growth trend, it rose fastest in Q1, and grew 10.7% y/y, higher than Q3 and Q4 in 2015. The other three quarters displayed slower growth rates.

Ended on December 16, 2016, the most important meeting, the central economic workshop meeting, held by Chinese top leaders including the President and Prime Minister,…

December 25, 2016

Stability and Progress Targeted for 2017

The economic working meeting of the Communist Party Central Committee, chaired by President Xi Jinping, has set next year’s main economic goal: stability and progress. The meeting, which ended on December 16th, was the most important political-economic session of yearend. We view progress not in terms of the growth rate, but as focused on structural transformation, and aimed at a more balanced economy.

Fixed asset investment rose 8.3% y/y in real terms in November, up slightly after canceling for incomparable factors. For various industries, a key change is that industrial investment is…

October 01, 2016

Supply-Side Reforms Succeeding

Key economic indicators are signaling positive changes. Fixed asset investment was up 8.1% y/y in August, and up 4.2 pps from July, recovering to Q2 levels, and halting its declining trend. Industrial output was up 6.3% y/y, and up 0.3 pps from July. Retail sales of social consumption goods were up 10.6% y/y in nominal terms, and up 0.4 pps from July. We attribute these positive signs to this year’s supply-side reforms, capacity cuts and deleveraging.

Exports fell -2.8% y/y, up 1.7 pps from Q2. Imports grew 1.5% y/y, shifting from negative into positive territory. The recovery trend for…

August 24, 2016

Why the IMF Raised its Growth Outlook

The IMF in June raised its 2016 growth outlook for China to 6.6%, a 0.1 pp uptick from its April projection, even though Brexit prompted the Fund to slice its global growth forecast for 2016 by 0.1 pp, to 3.1%.

The growth upgrade for China shows that the IMF is optimistic about the major reforms underway in China. The Fund’s outlook is consistent with our forecast, as China still has plenty of room to lift its fixed asset investment and current structural reforms, including by deleveraging and cutting excessive capacity, which should generate sustainable growth. Other common media concerns,…

July 25, 2016

Brexit Stokes Yuan Uncertainty

GDP grew 6.7% y/y in Q2, the same rate as in Q1. There’s downward pressure on future growth, though we also expect growth to stabilize. Industrial output was up 6.1% y/y. Though growth was 0.3 pps faster than in Q1, the recovery is weak.

Fixed asset investment rose 8.2% y/y in real terms, down 2.5 pps from Q1, and at the end of June was up only 7.4% y/y. In particular, private investment was up just 1.4% y/y, down 4.3 pps from Q1, and even shrank -0.1% y/y in June.

Retail sales of consumer goods were up 10.6% y/y in June in nominal terms, and up 0.6 pps from May. In Q2, imports fell -6.8%…

May 23, 2016

Uncertainty Persists

Fixed asset investment growth slowed significantly in April, rising by 10.1% y/y, down 0.6 pps from Q1. Value added for major industrial firms was likewise weak, at 6% y/y, down 0.6 pps from March -- and a break from the previous recovery. We expect private investment to pick up after industrial output shows clear signs of rebound – rising above 10% y/y, for example. More actions need to be taken to boost growth, and the Chinese government is advocating structural reforms, by encouraging more innovation. But we hope China does not deviate too much from its old path of investment.

Retail sales…

April 27, 2016

Signs of Rebound

GDP rose 6.7% y/y in Q1. Although that is still slower than in Q4 2015, improved main indicators for growthbolster our confidence in future growth.

Industrial output rose 6.8% y/y in March, up 0.7 pps from the previousquarter. Fixed asset investment excluding agriculture rose 10.7% y/y in Q1, up 1.4 pps from Q4, and 11.1% y/y,with growth especially strong in March. In Q1, the real estate market heated up, and sales were up 33.1% y/y.

Retail sales of social consumption goods rose10.3% y/y in Q1 in nominal terms, up 0.1 pps from the previous quarter, and rose 10.5% y/y in March.

Exports in…