The annual Central Economic Work Conference (CEWC) held by top leaders December 10th-12th emphasized “stabilities.” We believe that “around 6%” is the likeliest 2020 growth target. Infrastructure investment was mentioned, suggesting that infrastructure spending will be used to support the economy, if growth slows notably below 6%.
The good news that “phase 1” of a China-U.S. trade agreement, which includes a reduction of U.S. tariffs on Chinese goods, and an increase of foreign investor access to China, may be signed in early 2020, has cheered the markets. There are more optimistic expectations for the global economy next year, although we may see a ceasefire rather than a peace treaty.
Growth was recovering in November, mostly due to a private investment boost. Industrial output was up 6.2% y/y, representing a strong recovery, and up 1.5 pps from October, and 1.2 pps from Q3. Investment was up 5.2% y/y, up 1.8 pps from October and up 0.5 pps from Q3. Private investment was up 6.9% y/y, and up 4.3 pps from Q3. The adjusted growth rate for retail sales of social consumption goods was 4.9% y/y, down 0.8 pps from Q3.
Imports were up 2.5% y/y in November, up 5.4 pps from Q3, temporarily escaping the negative growth zone. Exports were up 1.3% y/y, instead of down 2.6 pps, as happened in Q3. CPI was up 4.5% y/y in November, up 0.7 pps from October, and up 1.5 pps from September. CEWC conference speakers did not mention inflation. This indicates that the current high inflation, driven mostly by meat prices, is considered a micro issue, and won’t significantly influence future monetary policy changes. The ex-factory price index of industrial goods fell -1.4% y/y, up 0.2 pps from October. PPI fell -2.2% y/y, down 0.1 pps from October. M2 rose 8.4% y/y, down 0.2 pps from October. M1 rose 3.5% y/y, up 0.2 pps from October.
Housing prices have stabilized, after the 2015 and 2016 boom. The CEWC conference stated that the direction of housing policy in 2020 would be stable. People’s Bank of China Governor Yi Gang had also mentioned earlier a plan to apply countercyclical action to the real estate industry. Since real estate plays an important role in the Chinese economy, we expect the stabilization policy to ease concerns of potential risks that real estate poses to the macroeconomy. Our confidence is based upon China’s strong fundamentals, the fact that few alternative investment channels are available, and strict real estate purchase restrictions.