2013 China Macroeconomic Semiannual Report

Economic growth slowed down with the critical period of restructuring

Phillip Securities (Hong Kong) Ltd
Bloomberg Reuters POEMS
Industry: Macro Economy

Phillip Securities Research 2013-7-26 Research Analyst Xingyu Chen chenxingyu@phillip.com.cn +86 21 5169 9400 105

The year-on-year growth rates of GDP went down quarter by quarter in 1H2013
Rating: Neutral

Summary Overall, Chinas economic growth slowed down obviously. According to the data of NBSC, as at the end of 2Q2013, GDP increased by 7.6% y-y to RMB24.8 trillion. The growth rate was lower than that of past few years, but still maintained on quite stable level based on the quarter-on-quarter growth rate, which increased by 0.1ppts compared with 1Q2103; The foreign reserve continued to increase by 4.17% y-y to US$3.44 trillion accumulatively in June 2013, in line with our expectation. Now the scale of Chinas reserve ranks No.1 in the world, the consistent growth of the amount represents there are more capital flowing into China, which will bring a larger inflationary pressure to China and more difficulties to manage the growth of loans; CPI increased continually in 1H2013, by the end of June 2013, Chinas CPI increased by 2.7% y-y, of which meat index increased by 4.8% y-y while the egg index only rose 0.3% y-y, down largely 11ppts compared with May. According to the historical data, the price volatility of eggs and relative products has obvious periodicity, and the price would rebound after the large decrease, meanwhile the CPI would go up. It represents a larger inflationary pressure for China in 2H2013; By the end of June 2013, 1-year deposit and lending interest rates of Chinese financial institutions maintained on 3% and 6% respectively. China still takes the easing monetary policies according to current internal and external macroeconomic environment. The PBOC may start to increase the interest rate if Chinas inflationary pressures increased obviously in 2H2013, meet our expectation; According to the money supply, total amount decreased month by month in 1H2012. However, the growth rate of M1 increased largely y-y while M2s growth maintained stable relatively. According to the data of the PBOC, as at the end of June 2013, Chinas M1 and M2 increased by 9.06% and 14.00% y-y respectively, down 2.3 and 1.8ppts respectively compared with that of May; The FDI went up in 1H2013 due to the rebound of oversea markets in 2012, especially in June, which shows capital inflow in China. By the end of June 2013, Chinas accumulated FDI amounted to US$61.984 billion, increased by 4.90% y-y, which was -2.37% in the same period of last year. Newly-added monthly FDI accorded to US$1.438 billion, up sharply 20.07% y-y;

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2013 China Macroeconomic Semiannual Report

Phillip Securities (Hong Kong) Research 2013-7-26

Deposit of residents decreased obviously in 1H2013 while RMB loans of financial institutions dropped as well. By the end of June 2013, RMB loans of Chinas financial institutions reached RMB68.08 trillion with the y-y growth rate of 14.15%, as 16.03% in 1H2012. Newlyadded monthly loans decreased by 6.45% y-y in June; Chinas investment still maintained stable in general, and the investment increased obviously in 1H2013 due to the rebound of markets, in line with our expectation. By the end of 1H2013, Chinas investment in fixed assets in urban areas achieved to RMB18.13 trillion, increased by 20.1% y-y of which the investment in property development raised largely 20.3% y-y to RMB3.68 trillion; In 1H2013 the demand of domestic consumption was stable, representing the consumers attitude is neutral, but the y-y growth rate of total retail has increased month by month since March. By the end of June, retail sales of consumer goods reached to RMB11.08 trillion, increased by 12.7% y-y. Monthly retail sales increased by 13.3% y-y to RMB1.88 trillion; In 1H2013, the growth of Chinas trading slowed down, especially in 2Q. By the end of June, Chinas monthly imports and exports decreased by 0.7% and 3.1% y-y to US$147.19 and 174.32 billion respectively. Monthly trade surplus recorded to US$27.13 billion, down 14.47% y-y largely. The total amount of import and export achieved to US$2 trillion, up 8.6% y-y; Currently Chinas economic scale maintains stable growth and ranks the antecedence in the world, but still faces serious challenges according to the quality of economy, especially under the background of the slowdown of economic growth. The main emphasis of the work for Chinese central government are trying to maintain the overall growth level, control the inflationary pressure, especially control the growth of loans and prevent the systematic risks from shadow bank.

Source: NBSC Fig. 3. Foreign exchange reserve of China by the end of June 2013
Reserves (US$ Bil) 4000 3500 3000 2500 2000 1500 1000 500
Foreign exchange reserves (Left) Growth rate yoy (Right)

Growth rate yoy 50.00% 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

Jan/06

Jan/07

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Sep/06

Sep/07

Sep/08

Sep/09

Sep/10

Sep/11

May/06

May/07

May/08

May/09

May/10

May/11

May/12

Sep/12

Jan/13

-5.00%

Source: PBOC, PSR Fig. 4. Growth of Chinas CPI by the end of June 2013
Growth rate of CPI yoy 60 50 40 30 20 10
Total Meat Food Eggs

Fig 1. Quarterly growth rate of Chinas GDP by the end of 2Q2013

Growth rate (%) yoy 16 14 12 10 8 6 4 2 0 Mar/00 Mar/01 Mar/02 Mar/03 Mar/04 Mar/05 Mar/06 Mar/07 Mar/08 Mar/09 Mar/10 Mar/11 Mar/12 Mar/13 Quarterly GDP of China

0
Jan /00 Jan /01 Jan /02 Jan /03 Jan /04 Jan /05 Jan /06 Jan /07 Jan /08 Jan /09 Jan /10 Jan /11 Jan /12

May/13

-10 -20 -30

Source: NBSC, PSR Fig. 5. Chinas basic interest rates in July 2013
Rate (%) 8 7 6 5 4 3
1-year depo sit rate 1-year lend ing rate

Source: NBSC, PSR Fig. 2. Monitoring signals of macroeconomic climate index by the end of May 2013

2 1 0

Jul/04

Jul/05

Jul/06

Jul/07

Jul/08

Jul/09

Jul/10

Jul/11

Jul/12

Jan/05

Jan/06

Jan/07

Jan/08

Jan/09

Jan/10

Jan/11

Jan/12

Source: PBOC, Bloomberg, PSR

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Jan/13

Jul/13

Jan /13

2013 China Macroeconomic Semiannual Report

Phillip Securities (Hong Kong) Research 2013-7-26

Fig. 6. Chinas money supply by the end of June 2013
Growth rate (%) yoy 45 40 35 30 25 20 15 10 5 0
M1 M2

Fig. 10. Investments in fixed assets in urban areas and property development in China by the end of June 2013
RMB Bil 6000.000 5000.000 35 4000.000 3000.000 20 2000.000 1000.000 15 10 30 25
Monthly fixed assets in urban area (Left) Monthly investment in property development (Left) Growth of accumulaitve investment in fixed assets in urban area (Right) Growth of accumulaitve investment in property development (Right)

Growth rate yoy 45 40

Feb/02

Feb/03

Feb/04

Feb/05

Feb/06

Feb/07

Feb/08

Feb/09

Feb/10

Feb/11

Feb/12

Feb/13

5
Apr/08 Aug/08 Sep/09 Apr/12 Oct/06 Oct/10 Nov/07 Nov/11 Aug/12 Jun/06 Dec/08 Jun/10 May/09 Dec/12 Jul/07 Jul/11

0.000
Feb/06

0
May/13
25 20 15 10 5

Feb/10

Mar/07

Source: PBOC, Bloomberg, PSR Fig. 7. Chinas FDI by the end of June 2013
Growth rate yoy 140.00 120.00 100.00 80.00 60.00 40.00 20.00
Jan/07 Jan/08 Jan/09 Jan/10 Jan/11 Jan/12 Sep/07 Sep/08 Sep/09 Sep/10 Sep/11 May/07 May/08 May/09 May/10 May/11 May/12 Sep/12 Jan/13

Source: NBSC, PSR

Value (US$ Bil) 16 14 12 10 8 6
May/13
1500

Monthly FDI (Right) Growth of ccumulative FDI (Left) Growth of Monthly FDI (Left)

Fig. 11. Retail sales of consumer goods in China by the end of June 2013
RMB Bil 2500
Monthly retail sales of consumption goods (Left) Monthly retail sales growth of consumption goods (Right)

Mar/11

Growth rate yoy

2000

0.00 -20.00 -40.00 -60.00 -80.00

4 2

1000

500

0
Nov/05 Nov/12 Jan/00 Jun/06 Jan/07 May/02 May/09 Mar/01 Mar/08 Feb/04 Aug/00 Sep/04 Aug/07 Feb/11 Sep/11 Dec/02 Dec/09 Jun/13 Jul/03 Apr/05 Jul/10 Apr/12 Oct/01 Oct/08
0 0

Source: MOFCOM, PSR Fig. 8. RMB loans and personal saving deposits of China by the end of June 2013
Growth rate yoy 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 500 0 -500 1500
Monthly newly added RMB loans (Right) Deposits of Residents YOY (Left) Total RMB loans YOY (Left)

Source: NBSC, PSR Fig. 12. Monthly imports and exports of China by the end of June 2013
Growth rate yoy 100 (%) 80
Balance of foreign trade monthly(Right) Import monthly (Left) Export monthly (Left)

Quantity (RMB Bil) 2000

US$ Bil 50 40 30 20 10

1000

60 40 20

0 0

Jan/00

Jan/02

Jan/04

Jan/06

Jan/08

Jan/10

May/01

May/03

May/05

May/07

May/09

May/11

Jan/12

-20 -40 -60

May/13

Nov-06

Apr-07

Sep-07

Dec-08

Oct-09

Aug-10

Nov-11

Apr-12

Sep-12

Jan-06

Jun-06

Jan-11

Jun-11

Sep/00

Sep/02

Sep/04

Sep/06

Sep/08

Sep/10

Sep/12

Feb-08

Jul-08

0.00%

May-09

Mar-10

Feb-13

-10 -20 -30 -40

Source: PBOC, PSR Fig. 9. PMI and New Order Index in China by the end of June 2013
Index 70 60 50 40 30 20 10 0
PMI New order index

Source: China Customs, PSR

Source: NBSC, PSR

Jan/05 May/05 Sep/05 Jan/06 May/06 Sep/06 Jan/07 May/07 Sep/07 Jan/08 May/08 Sep/08 Jan/09 May/09 Sep/09 Jan/10 May/10 Sep/10 Jan/11 May/11 Sep/11 Jan/12 May/12 Sep/12 Jan/13 May/13

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