China: Flat Growth to 2014

We revise down China’s 2013 GDP forecast to 7.5% from 7.9% and 2014 GDP to 7.5% from 7.7%. We see 3 drivers to the Chinese economy a) external demand through exports b) domestic demand measured through construction and c) monetary policy. They are all turning lower. First, exports have and will decelerate since they were elevated from likely over billing to take advantage of RMB appreciation. Authorities have clamped this down and exports will decelerate. Second, the biggest change we’ll likely see is in domestic demand where our SEB China Construction Indicator has turned down (Chart 1), signaling a slowdown to come. Floor space completed and sold are slowing, which means that inventory is beginning to rise and activity to slow. Lastly, we’ll likely get a monetary contraction where the growth rate in total social financing will slow (Chart 2). The authorities are scrutinizing corporate bond issuances and limiting certain wealth management products. Possible stimulus? The recent slowdown in activity has come with lower inflation (CPI in May was 2.1% yoy, 2.4% in April) and that has started speculation on possible policy easing. We have removed the interest rate hike in Q4 but we think it is too early for a stimulus. Property prices continue to rise almost 1% every month (Chart 3) despite measures introduced in March and makes it difficult to ease in this sector. With inventory rising, we’ll likely see slower rise in property prices but it is too early to step on the gas after introducing tightening measures just 3 months ago. For infrastructure, rapid stimulus projects are less likely. Projects typically need funding input from local governments. Lending standards are tightening and the central government is pushing for more transparency in local government borrowings. The central government will be reopening the same structural issue they were beginning to address if they restart rapid infrastructure projects. Finally, we think exports will slow from accounting adjustments but we don’t see a collapse that can drag the economy significantly lower that will require a stimulus. Korea provides a more accurate and up to date exports and this has started to stabilize (Chart 4). Our US economist also expects US growth at 2% for this year and accelerate to 3% in 2014 (see Nordic Outlook May 2013) and will provide stable external demand. If we do get a stimulus, we’ll likely need a very low 2Q GDP release in mid July and will only start impacting the economy in Q4 at the earliest and more into 2014.


EDITOR Sean Yokota
Head of Asia Strategy

+65 6505 0583

Chart 1: China construction has turned lower
50 40 30 20 10 % yoy 3mma SEB China construction indicator

Chart 2: Credit growth will likely slow
40 35 30 25 20 % yoy Bank Loans Total social financing estimate


-10 -20 07 08 09 10 11 12 13
10 05 06 07 08 09 10 11 12 13

Source: Bloomberg CEIC, SEB

You can also find our research materials at our website: This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changes may be made to opinions or information contained herein without notice.

Asia Strategy Comment

Chart 3: Property prices keep rising
1.2 1.0 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 -0.6 -0.8 Mar-12 May-12 Oct-12 Mar-13 May-13 Feb-12 Jul-12 Nov-12 Dec-12 Sep-12 Feb-13 Jan-12 Jun-12 Apr-12 Jan-13 Aug-12 Apr-13 Average house price MoM %

Chart 4: Exports will slow but not likely to contract in 2H
50 45 40 35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 00 01 02 03 04 Korea Exports YoY % 3mma



07 08






Source: Bloomberg CEIC,, SEB

Table 1: New China Forecasts
2013 GDP (%) CPI (%) Lending rate (%) Deposit rate (%) USD/CNY
Source: SEB

2014 Old 7.9 3.3 6.25 3.25 6.10 New 7.5 3.0 6.00 3.25 6.00 Old 7.7 3.5 6.75 3.75 6.00

New 7.5 2.8 6.00 3.00 6.10


Asia Strategy Comment

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