Economic resilience will stoke export growth


Producer prices increased fast between June 2020 and January 2021, and finally turned positive. The ex-factory price index of industrial goods rose 1% m/m, and 0.3% y/y. PPI rose 1.4% m/m, and 0.9% y/y. We expect the ex-factory price index to soon rise higher than 5% y/y, and PPI will rise higher than 8% y/y.

CPI fell -0.3% y/y. However, its seasonally adjusted growth rate was 0.3% m/m. The rise of the CPI level is mainly driven by the strong rebound of meat prices. The rebound is temporary, and linked to the Spring Festival effect. We expect the meat price will continuously drop for the next few months, and for CPI growth to slow as well.

Monetary and financial indicators cooled further. In January, M2 rose 9.4% y/y, down 0.7 pps from December. M1 rose 14.7% y/y, and 10% y/y after taking out the Spring Festival effect. RMB loans from financial institutions rose 12.7% y/y, down 0.1 pps from December. Savings deposits from non-financial institutions rose 15.8% y/y and deposits’ adjusted growth rate was lower than 12% y/y. Because the broad money supply was not affected by the Spring Festival effect, their growth rate declines show that the overall money and financial situation continue their declining trend.

PMI fell. In January 2021, PMI was 51.3%, down 0.6 pps from December 2020. The non-manufacturing business activity index was 52.4% y/y, down 3.3 pps from December. The two indexes show that expansion trends for both manufacturing and non-manufacturing industries have slowed.

Chinese exports have been strong since 2020. For example, China overtookthe United States as Europe’s top trade partner in 2020. Even though pandemic-related goods comprise a sizable share, other categories’ exports are also rising. Strong export growth, with production interruption in the rest of the world because of the pandemic, shows China’s economic resilience. The resumption of overseas production, if the pandemic is under control, will lift Chinese exports of capital and intermediate goods. Moreover, the import demand from the United States had been strong since 2020, and will likely be large, given the incoming stimulus. In sum, robust export performance will persist, and we expect export growth in the first half of 2021 to be 16%.