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er20130228BullPhatDragon (1)

er20130228BullPhatDragon (1)

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Published by Belinda Winkelman

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Published by: Belinda Winkelman on Feb 28, 2013
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02/28/2013

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1
a weekly chronicle of the Chinese economy 
Phat dragon
# 151
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 members of China’s National People’s Congress (NPC),the country’s top legislative body, will convene from the fifth ofMarch and will run to the
ides
, or thereabouts. This enormous,stage managed event (picture a mass wedding minus theblushing brides) formalises the senior political appointmentsthat were decided upon at the Communist Party Congress (CPC)of last November and ratifies the work reports of the leadership.Messrs Wen and Hu are still Premier and President respectively,until Xi and Li are formally anointed by the NPC. Xi’s ascentto the Secretary Generalship of the Party and to the chair ofthe Central Military Commission after the CPC signalled hewas very much in charge, but he isn’t the acknowledged headof state until the NPC says so.
Phat Dragon
tends to makehimself scarce around these events. There are at least fourgood reasons for doing so, beginning with the inordinate trafficstoppages associated with the incessant official motorcades.
Phat Dragon
has a passing interest in the official targetsfor GDP growth, consumer price inflation, M2 money supplygrowth and the fiscal deficit that will be unveiled at the NPC,but no more than that. This interest derives principally fromtheir symbolic value and not from their predictive content. Lastyear the GDP target was 7½% (actual ~7¾%), the M2 targetwas 14% (actual ~13¾%) and the CPI target was 4% (actual~2½%). This year it is likely that these three targets will bekept intact. However, how the economy evolves in relation tothese benchmarks will be the reverse of 2012. Last year, GDPand M2 needed a late surge to get back to the target after aweak beginning, while inflation started above target but swiftlymoved below it and stayed there. This year, GDP and M2 havemomentum in their favour, and they will need to deceleratelate to get back closer to ‘home’ (
Phat Dragon
gives GDPgrowth little chance of being as low as 8%, let alone 7½%), whileinflation will approach 4% in the second half of the year, whileaveraging 3½% or so.
The 70 city house price series improved very slightly in January,from already healthy levels at the end of 2012. The netproportion of cities seeing prices gains from the prior monthrose from 65.7% in December to 71.4% in January. In termsof the breakdown, 57 cities are seeing rises (up by 1) and 3fewer are seeing declines (7 from 10). The market troughed inthe June quarter, and with the odd wobble, has been improvingconsistently since. The healing is evident in the finances ofdevelopers, relief among those industries providing inputs,measured sales growth, the bottoming out of new starts, therising optimism in the flow of anecdotes and the rising chorusof alarms among the offshore bubbliophiles (which is right atthe top of
Phat Dragon’s
favourite neologisms list for 2013).The policy response has been predictable: reiterate the controlsthat are already in place, while placing an emphasis on localadministrators taking care of their own patch. The atmosphericsare important here. Going in to the NPC, it is important forthe leadership to talk a good game regarding equality, giventhe State Council recent acknowledgment of the need to domuch better in this regard. Housing affordability is one of themost visible aspects of the rising income divide. Yet to keepthe domestic economy on an even keel, real estate activitycannot contract as it did through parts of the last year. Thehappy medium is to frown sternly at the trend of house priceappreciation, and to lance obvious excesses where they arise.However, you do not want to lean too heavily on the aggregate
28 February 2013
Westpac Institutional Banking Group Economic Research economics@westpac.com.au www.westpac.com.au
-20246810-20246810Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13%%
CPI Target
Sources: Westpac Economics, CEIC
Chinese CPI: actual versus target
10152025301015202530Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13%%
M2 money supply Target
Sources: Westpac Economics, CEIC
Chinese money supply: actual versus target
market, lest you soon begin to regret your initial zeal.
Stats of the week: China’s retail e-commerce turnoverincreased 25 fold 2007 and 2012.
579111315579111315Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13%%
GDP Target
Sources: Westpac Economics, CEIC
Chinese GDP: actual versus target70 city house prices: month-on-month changes
-100-80-60-40-20020406080020406080100120Feb-11 Aug-11 Feb-12 Aug-12 Feb-13Net % of citiesNumber of cities
Number increasing (rhs)Number declining (rhs)Net % Rising (lhs)
Sources: CEIC,Westpac Economics

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