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ANZ Greater China Economic Insight Incl Regional Chartbook - 14 May 2013

ANZ Greater China Economic Insight Incl Regional Chartbook - 14 May 2013

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GREATER CHINA ECONOMICSANZ RESEARCHWEEKLY INSIGHT 
14 MAY 2013INSIDE
Data Preview and Review 2Greater China Chartbook 3China 4Taiwan 11Hong Kong 15China Liquidity Report 20Forecasts 21Important Notice 22
CONTRIBUTORS
 
Li-Gang Liu
Chief Economist, Greater ChinaLiGang.Liu@anz.com
Raymond Yeung
Senior Economist, Greater ChinaRaymond.Yeung@anz.com
Hao Zhou
China EconomistHao.Zhou2@anz.com
Louis Lam
Economist, Greater ChinaLouis.Lam@anz.com
RESEARCH@ANZ.COM
GREATER CHINA ECONOMICS CHARTBOOKChina:
April’s activity data indicates that growth momentum remains sluggish.As the risk of inflation diminishes on the near-term horizon, we believe themonetary policy stance has turned more supportive to growth. As centralbanks in the region cut interest rates and used intervention to ease thepressures of currency appreciation, we see an increasing likelihood for thePBoC to cut the policy rate by 25bps. This will reduce the incentive for capitalinflows which may actually risk overheating the property sector. After all, realestate prices are determined by the supply-demand conditions and the sectoris still subject to other property tightening measures.However, monetary policy alone will have limited impact on the economicrebalancing. To some extent, an overly supportive credit policy is likely toworsen China’s overcapacity problems. We thus argue that China shouldaccelerate the structural reforms to sustain economic growth, such as reducingtax burdens on the services sector, deregulation and encouraging competition,interest rate liberalization, and deepening capital market developments toregain growth impetus.
Taiwan:
The economy contracted in Q1 on weak demand from major marketsincluding China, the US and the EU. However, investment rose strongly as theglobal electronic cycle continued to support Taiwan’s electronic producers.However, the weak yen has started to dampen export orders on valuationeffects when expressed in USD terms.
Hong Kong:
GDP flattened in Q1, in line with the downside surprise we sawfor China and Taiwan. Private consumption held up and was the biggestcontributor to helping the city’s state maintain positive growth. However,attention should be paid to any sharp correction of property prices as it formsa large part of household wealth.
CHINA MARKET LIQUIDITY REPORT
The PBoC resumed the issuance of the 3-month bills for the first time sinceDecember 2011, to offset capital inflows as overseas investors pump moneyinto the country to take advantage of the yuan’s rise.
CHART OF THE WEEKChina’s strong credit extension failed to translate into activity growth
China - Total Social Financing
(RMB bn)
01,0002,0003,0004,0005,0006,0007,0008,0009,000
   T  o  t  a   l   S  o  c   i  a   l   F   i  n  a  n  c   i  n  g   R   M   B   L  o  a  n   F  o  r  e   i  g  n   C  u  r  r  e  n  c  y   L  o  a  n   E  n  t  r  u  s  t  e   d   L  o  a  n   T  r  u  s  t   L  o  a  n   B  a  n   k  e  r   '  s   A  c  c  e  p  t  a  n  c  e   D  r  a   f  t   N  e  t   C  o  r  p   B  o  n   d   N  o  n  -   F   i  n  a  n  c   i  a   l   E  q  u   i  t  y
Jan-Apr 2012 Jan-Apr 2013
 Sources: CEIC, ANZ
 
ANZ Greater China Economics Weekly Insight / 14 May 2013 / 2 of 23
DATA PREVIEW & REVIEW
GREATER CHINA ECONOMIC DATA CALENDAR 
DATE COUNTRY DATA/EVENT PERIOD CONSENSUS LASTTIME(HK/SG)
14-18 May China Actual FDI (y/y) Apr 6.20% -- -18 May China Property Prices Apr -- -- 9:3020 May Taiwan Export Orders (y/y) Apr -- -6.60% 16:0020 May Taiwan Current Account Balance (USD) Q1 -- 15.96Bn 16:2020 May Hong Kong Unemployment Rate sa Apr -- 3.50% 16:3021 May Hong Kong CPI - Composite Index (y/y) Apr -- 3.60% 16:30
Source: Bloomberg
WEEK IN REVIEW
DATE COUNTRY DATA/EVENT PERIOD CONSENSUS ACTUAL LAST
07 May Taiwan Trade Balance (USD) Apr 1.57bn 2.27bn 3.20bn07 May Taiwan Exports (y/y) Apr 3.10% -1.90% 3.30%07 May Taiwan Imports (y/y) Apr 0.30% -8.20% 0.20%07 May Hong Kong Foreign Reserves (USD) Apr -- 306.5bn 303.8bn08 May China Trade Balance (USD) Apr 16.15bn 18.16bn -0.88bn08 May China Exports (y/y) Apr 9.20% 14.70% 10.00%08 May China Imports (y/y) Apr 13.00% 16.80% 14.10%09 May China CPI (y/y) Apr 2.30% 2.40% 2.10%09 May China Producer Price Index (y/y) Apr -2.30% -2.60% -1.90%10 May China New Yuan Loans (RMB) Apr 755.0bn 792.9bn 1060.0bn10 May China Money Supply - M0 (y/y) Apr 12.00% 10.80% 12.40%10 May China Money Supply - M1 (y/y) Apr 11.00% 11.90% 11.90%10 May China Money Supply - M2 (y/y) Apr 15.50% 16.10% 15.70%10 May China Total Social Financing (RMB) Apr 1.5trn 1.75trn 2.54trn10 May Hong Kong GDP sa (q/q) Q1 0.50% 0.20% 1.20%10 May Hong Kong GDP (y/y) Q1 2.70% 2.80% 2.50%13 May China Industrial Production YTD (y/y) Apr 9.50% 9.40% 9.50%13 May China Industrial Production (y/y) Apr 9.40% 9.30% 8.90%13 May China Fixed Assets Investment YTD (y/y) Apr 21.00% 20.60% 20.90%13 May China Retail Sales YTD (y/y) Apr 12.60% 12.50% 12.40%13 May China Retail Sales (y/y) Apr 12.80% 12.80% 12.60%
Source: Bloomberg
 
 
ANZ Greater China Economics Weekly Insight / 14 May 2013 / 3 of 23
GREATER CHINA CHARTBOOK
OVERVIEW: STRONG CREDIT EXTENSION FAILED TO TRANSLATE INTO ACTIVITY GROWTH
 
China:
While China’s activity data improved somewhat in April, growth momentum remains sluggish. Theimprovement in the headline industrial growth figures is largely due to a low base effect of last year.
 
Trade growth remained strong in April, following a surge in the past two quarters. However, we doubt thestrong external performance. The trade data defies the weak trade data reported in other regionaleconomies. Our previous study (ANZ Greater China Insight, 7 May 2013) indicates thatexporters/importers may use cross-border trade for financial gains.
 
CPI inflation rebounded modestly to 2.4% y/y in April, from March’s 2.1%, slightly higher than marketexpectations (2.3%). However, PPI declined by 2.6% y/y in April, compared with -1.9% in March,reflecting the recent pullback in raw material prices.
 
Credit and money supply grew strongly in April, suggesting that domestic monetary conditions have beensubject to strong pressure from capital inflows.
 
We believe that the mild inflation outlook, together with sluggish domestic demand, has set the rightconditions for a rate cut. The RMB is under significant appreciation pressure owing to the widening interestrate differentials between RMB and other key currencies in the world, especially after the recent ECB, RBAand BoK's rate cuts. Lowering the interest rate differentials will help dampen the capital inflows, whilefalling inflation will offset the risk of negative carry in deposit rates. Meanwhile, the PBoC could allow banksto raise their deposit rates to up to 1.2 times the policy rate. This policy will not only push forward interestrate liberalisation but also reduce the possibility of a negative real interest rate.
 
Taiwan:
Q1 GDP contracted 0.81% saqr, as global economic recovery failed to gain traction. Weakexternal demand dragged on the economy, reflecting the slowdown in Mainland China and the EU. Webelieve momentum will pick up mildly in Q2 and accelerate through the rest of the year, in conjunctionwith the pick up in China and the US. Domestically, investment should continue to be the main driver, asinvestment from electronic producers remains upbeat.
 
Hong Kong:
Hong Kong’s headline GDP grew 2.8% y/y in Q1. Sequentially, the economy barely expandedwith a 0.2% q/q sa gain. This is in line with the downside surprise we saw for China and Taiwan. Privateconsumption held up and was the biggest contributor to helping the city’s state maintain positive growth.
China - Domestic Demand Indicators
(y/y)
57911131517Oct10Jan11Apr11Jul11Oct11Jan12Apr12Jul12Oct12Jan13Apr13
Industrial Production, y/y Real Retail Sales, y/y
 
China - Inflation
(y/y)
-6-4-20246810Oct10Jan11Apr11Jul11Oct11Jan12Apr12Jul12Oct12Jan13Apr13
CPI PPI
 
Taiwan - Contributions to GDP Growth
(ppt)
-6-4-202468101214Jun10Sep10Dec10Mar11Jun11Sep11Dec11Mar12Jun12Sep12Dec12Mar13
Private Consumption Government ConsumptionInvestment Change in StocksNet Exports y/y
 
Hong Kong - Contributions to GDP Growth
(ppt)-10-5051015Sep10Dec10Mar11Jun11Sep11Dec11Mar12Jun12Sep12Dec12Mar13Private Consumption Government ConsumptionInvestment Changes in InventoriesNet Exports Total, y/y
 Sources: Bloomberg, CEIC, ANZ

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