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er20121203BullPhatDragon (1)

er20121203BullPhatDragon (1)

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Published by Belinda Winkelman

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Published by: Belinda Winkelman on Dec 03, 2012
Copyright:Attribution Non-commercial


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a weekly chronicle of the Chinese economy 
Phat dragon
# 141
Past performance is not a reliable indicator of future performance. The forecasts given above are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The results ultimately achieved may differ substantially from these forecasts.
The NBS manufacturing PMI rose from 50.2 in October to 50.6November. The final estimate of the HSBC measure (50.5)basically confirmed the flash estimate (50.4), which was thefirst reading in the expansionary zone since October 2011. Themain themes for the manufacturing sector at present are theadvanced state of the de-stocking cycle in finished goods andthe immature state of the re-stocking cycle for raw materialsand other intermediate inputs.
Phat Dragon
argues that thesetrends are positive for short term output, but they shouldn’tbe carried too far in terms of aggregate growth acceleration.While order books are looking considerably healthier, they arestill far from full, and there is considerable uncertainty aboutthe near term export profile.
Phat Dragon
just does not believethat the steep rate of incline now observable in the HSBC newexport orders series is credible. The amount of turnover andthe number of buyers at the autumn session of the CantonTrade Fair (–13.8% and –10.1% versus 2011 respectively)hardly supports this - nor does the rolling recession in Europe.It appears that the IT product cycle and the strenuousefforts of domestic machinery producers to divert stocks tothe international market is having a temporary but materialinfluence on aggregate trade sector outcomes.
Phat Dragon’s
reading of the October industrial profits releaseis that this lagging indicator - now growing again after a periodof contraction through mid year - is further confirmation thatthe economy is well on its way to tracing out a shallow ‘V’,with a nadir around the March quarter and the upstroke clearlyinitiated but far from complete. And in a forward looking sense,evidence of stabilising margins in heavy industry help to removesome of the downside risks that
Phat Dragon
ascribes tomanufacturing investment in 2013, which is the major potentialhome grown threat to the capex recovery profile. Outwardlooking industries have also seen their margins widen, evenif absolute levels remain unprepossessing. In this categorymargin improvement is most evident in the electronics space,consistent with the sector specific factors defined above.
Phat Dragon
has just spent a few days in solemn conclave(Chatham House rules) with a range of officials, academicsand private sector operatives from China and elsewhere. Thegathering was convened to consider recent advances in energyand resource forecasting processes bridging demand, supply,efficiency and price. And there was plenty of time to exchangeinformal views on other matters. Some of these issues are ofimmediate import. Others will congeal over decades. On thenear term, it was generally agreed that the Chinese demandcycle was turning, tentatively. Nobody seriously challenged thepositions that a) the bulk commodity price cycle has peaked,and b) Chinese potential growth is diminished from where itstood in the roaring 2000s. There was a view that while metalsintensity will peak within a handful of years (or at worst twohandfuls) energy satiation is still some decades away. China’sportfolio of energy sources will diversify over the long run, butit is inescapable that coal will remain dominant despite risingshares for gas (conventional and other) and nuclear (with therenewables share possibly peaking now). Various methods ofassessing supply issues were put forward, including some niftybinary choice frameworks. Some interesting bottom up and topdown forecasting techniques across energy and metals demandwere also documented. And to top it off
Phat Dragon
was ableto consume a volume of Minsky on the outward leg and a fewchapters of Schumpeter (including some copious asides in thefootnotes) on the homeward journey. Time well spent.
3 December 2012
Westpac Institutional Banking Group Economic Research economics@westpac.com.au www.westpac.com.au
Upstream heavy industrial margins
Raw chemicalsFerrous Non-metal minerals Non-ferrous
Sources: Westpac, CEIC.
Sources: CEIC, Markit* Seasonally adjusted by Westpac Economics.
Finished goods inventories
De-stocking of outputs, re-stocking of inputs
Purchases of materials
NBS new orders*NBS new export orders*Markit-HSBC new export ordersMarkit-HSBC new orders
Sources: CEIC, Markit*Seasonally adjusted byWestpac Economics.
New orders & export orders: PMI measures
Stats of the week: Mainland China’s trade logistics set upis ranked 26th best in the world, behind other emergingmarkets in Taiwan (19), Korea (21) and South Africa (23).
Trade logistics performance index = best5 = best
Sources: WorldBank,Westpac Economics.Includes customsefficiency; quality of trade andtransport hard infrastructure; ease of arrangingshipments; ability to track and trace consignments;timeliness of delivery.

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