a weekly chronicle of the Chinese economy
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.
In the time since
most recent chronicle waspublished, there have been five developments in the activity andprice data worthy of acknowledgement. They are the strengthof credit supply in the month of December; the strength ofiron ore imports in the same month (alongside a dramatic rallyin prices); further definitive signs that the inflation cycle hasturned upwards; some curious disparities between Chinesecustoms export data and the shipments reported in destinationcountries; and survey data indicating that the industrialinventory cycle is stabilising and will therefore be providing lessof an impetus for production gains in the coming period.
On the credit figures, total new supply expanded by 22.9% in2012 having declined by 8.5% in 2011. Domestic currencybank loans declined to just 52% of new supply, down from 58%in 2011. This trend was most pronounced in the second halfof the year - and was very striking in December itself. A risingshare for non-bank financing is consistent with the preferencesof local governments moving towards bonds and away fromloans, and the incipient upswing in asset prices that hascatalysed trust and entrusted financing activities.
has noted previously that the respectable credit supply seenin the second half of 2012 will be sufficient to sponsor decentactivity growth through at least the middle of 2013. However,with monetary policy likely to flat-line from here - noting thatthe December inflation figures represent a warning shot acrossthe administration’s bows, should they be considering furthereasing - the growth pulse will not accelerate beyond Q2/Q3,leaving the year-ended pace vulnerable late in the year. TheDecember manufacturing PMI surveys showed strong demandfor materials (re-stocking of inputs) and stabilisation in finishedgoods inventories (a mature de-stocking incentive). So whileaggregate demand is in a cyclical upswing, there will be somenoise around the uptrend in the first half of this year as theinventory cycle transitions between phases.
China reported that its exports grew by 14.1%yr in December,up from 2.9% in November, while imports grew by 6%yr, havingbeen flat in the prior month. The release drew howls of protestfrom the forecasting community. Their objections included thelack of concordance with the data provided by China’s tradepartners and with information on logistics flows. The subduednature of the export series in PMI surveys was also cited.
take is that the numbers certainly do look odd. Justhow odd is a different question. Firstly, the standard deviationof monthly year-ended export growth since 2001 is 16.5ppts,so the scale of the move is not outlandish. Second, the PMIsare at best OK predictors of monthly real economy data andare thus not to be relied upon exclusively as forecasting tools.However, a major discrepancy between home customs data andthe information reported at destination is most problematic. Afew things spring to mind here. Ambitious local administratorsmight game the numbers late in the year attempting to getnearer annual targets. Alternatively, Mainland entrepreneurscan over-invoice on export shipments to bring capital backinto the country at a time when asset prices are rising again.When the discrepancy is greatest in neighbouring countries withlarge ‘bamboo networks’ that dominate grey capital flows, thisprospect looms large. Or local officials might have informallycommunicated a short term amnesty on such activities,given temporarily converging incentives for poachers andgamekeepers, with dramatic effect.
16 January 2013
Westpac Institutional Banking Group – Economic Research – firstname.lastname@example.org – www.westpac.com.au
Chinese total social financing –nominal levels
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013f
% shareRMB trillion
OtherBondsFX loansBill financeTrust and entrusted loansRMB bank loansNon-bank share (rhs)
Sources: CEIC, Markit * Seasonally adjusted by Westpac Economics.
Finished goods inventories
Output de-stock over, input re-stock ongoing
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Purchases of materials
7¾% projection for real GDP growth in 2012has been maintained throughout the calendar year. To hitthat target, assuming there are no revisions to history (in Q3,revisions to the quarterly profile hung forecasters out to dry), anoutcome of 8.0-8.1%yr for the December quarter, scheduled forFriday, is required. In terms of the seasonally adjusted quarterlypace that the NBS now reports, a step up from 2.2% in Q3 to2.4% in Q4 will hopefully deliver that outcome.
uses the term “hopefully” advisedly: the internal consistency ofthe various national accounts estimates reported by the NBS isgenerally more than a little fuzzy.
Stats of the week: 2.9% of Chinese adults are classifiedas obese, which ranks 66th out of 70 worldwide. Samoais #1 with three quarters of its adults obese, the UScomes in around one third (6th); & Asian countries rangefrom 0.5% (Vietnam, #70) to 16.3% (Malaysia, #28).
Chinese exports to Taiwan
Mar-2001 Mar-2004 Mar-2007 Mar-2010 Mar-2013
Measured in ChinaMeasured in Taiwan%yr
Sources: Westpac, CEIC. 3mma.