macro outlook

Financial Market Opens Further

September 24, 2019

Growth is slowing further. In August, industrial output was up 4.4% y/y, down 0.4 pps from July, while investment rose 4.2% y/y, down 1.3 pps from Q2.

Retail sales of social consumption goods were up 7.5% y/y in August, down 1.1 pps from Q2. The indicator’s real growth rate was 5.6% y/y, down 0.9 pps from Q2. Exports were stable, but the import growth rate was plunging. Exports were up 2.6% y/y. Yet recent export growth was rather volatile. The July-August combined growth rate was 5.9% y/y, almost the same as in Q1 and Q2. The much lower export growth to the United States was compensated for by exports to ASEAN countries, and to Taiwan. Imports fell -2.6% y/y, down 4 pps from H1.

CPI was up 2.8% y/y in August, the same rate as in July. Its main components, however, changed significantly, with pork prices skyrocketing due to the sharp reduction of production caused by the previous spread of African swine fever. At the same time, producer prices fell further, and the growth rate turned negative. The ex-factory price index of industrial goods fell -0.8% y/y, and PPI fell -1.3% y/y, down 0.5 and 0.7 pps from July. The major decline in growth rates is mainly due to last year’s high base numbers. We expect this decline to slow by the end of this year. Principal financial indicators are largely stable. At the end of August, M2 was up 8.2% y/y, close to its July rate. M1 was up 3.4% y/y, up 0.3 pps from July.

On September 10th, the State Administration of Foreign Exchange (SAFE) removed the investment quota limitations on two inbound investment schemes: the Qualified Foreign Institutional Investor (QFII) program, and the RMB Qualified Foreign Institutional Investor (RQFII) program. On September 23rd, Standard & Poor's Dow Jones indices included China A-Shares to S&P DJI's Global Benchmark Indices, after the MSCI index’s inclusion. The index company’s response to the inclusion attributed the sole reason to overseas investors’ increased interest in the Chinese market. The bond market also exhibits this internationalization trend this year, such as via the Bloomberg index’s inclusion of the China bond market. Institutional investors with careful analytical tools run contrarily to the negative trade war sentiment. More financial integration will improve China’s capital allocation and market efficiency. This also benefits Chinese firms, by lifting their competitiveness both directly and indirectly, and will increase their internationalization.

June 22, 2019

More Steps toward Financial Openness with London-Shanghai Connect

Growth is facing downward pressure. Industrial output rose 5% y/y, down 0.4 pps from April, reaching a new low rate. Investment rose 4.4% y/y, down 1.3 pps from April. The decrease of investment growth rate is mainly affected by state investment because of fiscal deficit pressure. State investment rose 5.6% y/y in May, down 4.2 pps from April. In May, fiscal revenue fell -2.1% y/y, down 7.4 pps from January-April, putting further constraint on state investment. Real estate cooled further.

Retail sales of social consumption goods were up 8.6% y/y in May in nominal terms. The adjusted growth…

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…