JP Morgan - Jan 2015 - Greater China Quarterly Report

Economic Research
JPMorgan Chase Bank, Hong Kong

January 22, 2015
Greater China Quarterly Issues

Chinas new normal
Contents
Chinas 4Q14 GDP report confirmed that the economy moderated to 7.1% q/q saar
pace of growth, moderating from 8.1% q/q saar in 3Q. For full-year 2014, real GDP
rose 7.4%oya, a touch below the governments growth target of 7.5%, and the
slowest annual growth since 1991. To a large extent, the economys slowing is
expected and desirable, as it is mainly driven by slowing fixed investment growth,
especially in real estate and manufacturing investment, which face oversupply
problems. Meanwhile, the service sector showed rather stable growth, while
unemployment rate remained under control, with household income surpassing
GDP growth, and income inequality starting to narrow. These are important
features in Chinas new normal phase of growth (or economic rebalancing).
Economic Research Notes

2015 Economic Outlook: China
2015 Economic Outlook: Hong Kong
11
2015 Economic Outlook: Taiwan
13
Looking into 2015, we expect Chinas growth to ease further to 7.2%, with the
overall growth pattern may not change much, amid ongoing economic rebalancing.
The positive drivers include stable growth in the service sector, support for the
export sector given the constructive outlook on global demand, and positive impact
of the sharp decline in global oil prices on Chinas current account, household
consumption and industrial profits. The major drag on growth is the continued
slowdown in real estate investment, along with overcapacity problems in certain
industries. Besides, local government spending capability will likely be constrained
under the reformed fiscal regime this year as well as slowing land sales revenue.
On macro policy, the focus in 2015 will be prevention of downside risks, including
macro risk and financial risk. We believe, from the policymakers perspective, the
growth floor in 2015 is 7%. We expect the central government will raise the deficit
target from 2.1% of GDP in 2014 to 2.9% of GDP in 2015. On monetary policy, we
expect one more rate cut (likely in 1Q) and two RRR cuts (with the first cut likely
to be implemented before the Chinese New Year), in combination with other
targeted policy instruments, including SLF, MLF, PSL, etc. With divergence in
monetary policy in the advanced economies (which leads to USD strength), the
decision on CNY exchange rate policy will be a difficult one this year.
Hong Kongs growth momentum has seen notable rebound in 3Q14 after
experiencing modest sequential contraction for the first time since 2Q11. Private
consumption and net exports were the main drivers behind latest rebounds. Going
into 2015, external demand condition is expected to remain constructive for Hong
Kong. However, Chinas slowdown will likely continue to affect Hong Kong
through trade, tourism and financial linkages. The risks associated with elevated
debt ratio and expected interest rate hikes are worth attention. In particular, the
more alarming signal may actually come from the corporate side.
Haibin Zhu
(852) 2800-7039
haibin.zhu@jpmorgan.com
Grace Ng
(852) 2800-7002
grace.h.ng@jpmorgan.com
Lu Jiang
Taiwans latest macro indicators, including the December PMI, merchandise trade
report and November IP, generally came in on the soft side, pointing to some nearterm softness in export and industrial activities. Further out, the J.P. Morgan view
looks for global growth to turn up moderately from 2Q15 onwards, which would be
generally supportive of Taiwans export and industrial sectors for most part of
2015. Besides, the sharp fall in global oil prices would be a net positive for Taiwan,
given its role as a net oil importer. Our estimate for Taiwans 2014 GDP growth
stands at 3.3%oya, with the 2015 growth forecast at 3.7%. With stable growth and
subdued inflation, the central bank will likely keep policy rates on hold in 2015.
(852) 2800-7053
lu.l.jiang@jpmorgan.com
www.jpmorganmarkets.com
Economic Research
January 22, 2015
Haibin Zhu (852) 2800-7039

Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
Key economic statistics

China
Hong Kong
Taiw an
US
Euro Area
Japan
2013 Nom inal GDP, US$

Total
per
billion
capita (US$)
9252
6081
274
36454
513
21294
16768
51689
13645
32868
4560
46562
Real GDP
%y ear-on-y ear
2013 2014E 2015F
7.7
7.4
7.2
2.9
2.3
2.5
2.2
3.3
3.7
2.2
2.4
3.2
-0.4
0.9
1.5
1.6
0.2
1.4
Consum er prices
%y ear-on-y ear
2013 2014E 2015F
2.6
2.0
1.5
4.3
4.3
3.5
0.8
1.2
0.5
1.5
1.6
-0.4
1.4
0.4
-0.4
0.4
2.8
0.5
China
Hong Kong
Taiw an
US
Euro Area
Japan
Current account balance

% of GDP
2013 2014E 2015F
2.1
3.1
3.6
1.3
1.0
1.4
10.8
11.2
12.5
-2.4
-2.2
-1.9
2.0
2.4
2.7
0.7
0.5
4.8
Governm ent balance

% of GDP, end of period
2013 2014E 2015F
-2.1
-2.1
-2.9
1.0
1.5
1.0
-1.4
-1.6
-1.5
-4.1
-2.8
-2.6
-3.0
-2.8
-2.6
-8.9
-8.0
-6.5
Industrial production
%y ear-on-y ear
2013 2014E 2015F
9.7
8.3
8.1
0.1
1.4
1.4
2.2
3.3
3.7
2.6
3.6
3.8
-0.7
0.7
1.8
-0.6
2.1
3.0
2013
Real GDP, %-ch over a year ago
China
7.7
Hong Kong
2.9
Taiw an
2.2
US
2.2
Euro Area
-0.4
Japan
1.6
2014F
2015F
1Q14
2Q14
3Q14
4Q14F
1Q15F
2Q15F
3Q15F
4Q15F
7.4
2.3
3.3
2.4
0.9
0.2
7.2
2.5
3.7
3.2
1.5
1.4
7.4
2.6
3.4
1.9
1.1
2.2
7.5
1.8
3.9
2.6
0.8
-0.3
7.3
-1.0
3.6
2.7
0.8
-1.2
7.3
-1.5
2.7
2.5
0.8
0.2
7.3
2.3
3.4
3.8
0.9
-0.7
7.2
2.8
3.6
3.4
1.3
1.6
7.1
2.0
3.9
2.8
1.7
2.6
7.2
2.7
3.9
2.7
2.1
2.0
Real GDP, %-ch over 1 quarter, saar

China (JPMorgan estimate)
7.7
Hong Kong
2.9
Taiw an
2.2
US
2.2
Euro Area
-0.4
Japan
1.6
7.4
2.3
3.3
2.4
0.9
0.2
7.2
2.5
3.7
3.2
1.5
1.4
6.4
1.2
1.2
-2.1
1.3
5.8
7.4
-0.4
3.5
4.6
0.3
-6.7
8.3
7.0
2.6
5.0
0.6
-1.9
7.2
0.5
3.6
2.8
1.0
4.0
6.3
2.2
3.8
3.0
1.8
2.0
7.1
1.8
4.2
3.0
2.0
2.5
8.0
3.5
4.0
2.5
2.3
2.0
7.3
3.5
3.6
2.5
2.2
1.5
Consumer prices, %oya, average

China
2.6
Hong Kong
4.3
Taiw an
0.8
US
1.5
Euro Area
1.4
Japan
0.4
2.0
4.3
1.2
1.6
0.4
2.8
1.5
3.5
0.5
-0.4
-0.4
0.5
2.3
4.2
0.8
1.4
0.7
1.5
2.2
3.6
1.6
2.1
0.6
3.6
2.0
4.8
1.5
1.8
0.4
3.3
1.5
4.6
0.8
1.2
0.2
2.8
1.6
4.3
0.3
-0.5
-0.6
2.1
1.3
4.4
0.0
-0.8
-0.5
-0.2
1.3
2.7
0.3
-0.6
-0.4
-0.2
1.7
2.7
1.3
0.2
0.1
0.4
Official interest rates, % p.a., end-period

China
1-y ear lending
6.00
5.60
Hong Kong Disc. Window
0.50
0.50
Taiw an
Official disc.
1.875
1.875
US
Fed funds
0.125
0.125
Euro Area Refi rate
0.25
0.05
Japan
O/N call rate
0.05
0.05
5.35
1.25
1.875
1.000
0.05
0.05
6.00
0.50
1.875
0.125
0.25
0.05
6.00
0.50
1.875
0.125
0.15
0.05
6.00
0.50
1.875
0.125
0.05
0.05
5.60
0.50
1.875
0.125
0.05
0.05
5.35
0.50
1.875
0.125
0.05
0.05
5.35
0.75
1.875
0.500
0.05
0.05
5.35
1.00
1.875
0.750
0.05
0.05
5.35
1.25
1.875
1.000
0.05
0.05
6.15
7.75
32.40
1.15
128.00
6.22
7.76
30.45
1.38
103.00
6.20
7.75
29.87
1.37
101.29
6.14
7.77
30.44
1.26
109.67
6.20
7.75
31.62
1.21
119.87
6.25
7.75
31.80
1.22
120.00
6.20
7.75
32.00
1.20
123.00
6.18
7.75
32.20
1.18
125.00
6.15
7.75
32.40
1.15
128.00
Exchange rates, end-period

China
USD/CNY
Hong Kong USD/HKD
Taiw an
USD/TWD
Euro Area EUR/USD
Japan
USD/JPY
6.05
7.75
29.83
1.38
105.30
6.20
7.75
31.62
1.21
119.87
JPMorgan Chase Bank, N.A., Hong Kong

Haibin Zhu (852) 2800-7039
China: The magic "7"
Economic Research
Emerging Asia Year Ahead 2015
December 19, 2014
China: economic indicators
Growth to moderate from 7.4% in 2014 to 7.2% in 2015

Priority tasks are stabilizing growth and preventing
systemic financial risks
Drivers of economic growth: high trade surplus, stable
consumption but weak investment
USD/CNY will fluctuate within a range
We expect the economy's pace of growth to decelerate
further to 7.2% in 2015 from 7.4% in 2014. This will be the
lowest growth rate since 1991, but given the much larger size
of the economy, the increase in the absolute level of GDP (in
real term) will still be a record high. In our view, the
economys pattern of growth going into 2015 may not change
much, amid ongoing economic rebalancing. The positive
drivers include relatively stable growth in the service sector,
as well as the support for the export sector given the
constructive outlook on global demand (though CNY
appreciation in REER terms and relatively weak EM demand
will limit export growth to around 6.5% in 2015). Benefiting
from sharp decline in oil prices and softness in global
commodity prices, Chinas current account surplus will likely
climb to 3.6% of GDP, the highest level since the global
financial crisis. Consumer demand will likely remain roughly
steady. The major drag on economic growth, in our view, is
the continued slowdown in real estate investment growth
(decelerating further from 12%oya in 2014 to about 6%oya in
2015), along with persistent overcapacity in parts of the
manufacturing sector.
Average
2008-12
2013
2014e
2015f
9.2
3.5
6.3
-0.6
3.3
2.9
-1.7
7.7
3.8
4.1
-0.3
2.6
2.5
-2.1
7.4
3.5
3.0
0.9
2.0
1.5
-2.1
7.2
3.5
2.9
0.8
1.5
1.8
-2.9
286.3
1636.4
1350.0
243.8
4.0
2748.0
556.8
345.1
8.5
26.4
2.7
360.0
2220.4
1860.4
189.7
2.1
3820.0
792.6
622.3
8.3
29.0
3.2
495.4
2360.9
1865.5
321.2
3.2
3920.0
825.6
672.3
8.0
28.7
3.2
601.5
2519.6
1918.2
407.6
3.6
4145.0
870.6
732.3
7.6
28.3
2.7
Real GDP, % change

Consumption
Investment
Net trade
Consumer prices, %oya
% Dec/Dec
Government balance, % of GDP
Merchandise trade balance (US$ bn)
Exports
Imports
% of GDP
International reserves, (US$ bn)
Total external debt, (US$ bn)
Short term
Total external debt, % of GDP
Total external debt, % of exports
Interest payments, % of exports
1. Contribution to growth of GDP.
Chart 1: Real GDP growth
JPMorgan
forecast
% change, both scales

16
%oya
14
17
%q/q saar
14
12
11
10
Taken together, we expect consumption, investment and net

exports to contribute 3.5%-pts, 2.9%-pts and 0.8%-pts,
respectively, to overall GDP growth in 2015. Regarding the
quarterly growth trajectory, we expect GDP growth to
moderate in 4Q14 and 1Q15 to 7.0% q/q, saar and 6.3%
respectively (compared to average 7.9% in 2Q14 and 3Q14) ,
given lingering weakness in domestic demand, before
recovering from 2Q15 onwards as the impact of policy easing
gradually comes through. The GDP growth trajectories for
2Q15, 3Q and 4Q stand at 7.1%q/q, saar, 8.0% and 7.3%
respectively. Translated into year-over-year term, the
quarterly growth trajectory in 2015 is 7.3%, 7.1%, 7.1% and
7.2%, respectively.
20
2
06
07
08
09
10
11
12
13
14
15
Source: NBS, J.P. Morgan forecast
Chart 2: Contribution to headline GDP growth

%-pt contribution to headline %oya growth
Total consumption
Gross fixed capital
expenditure
formation
8
Net export
6
10
4
2
0
-2
-4
On macro policy, at the annual Economic Work Conference

held in early December, maintaining stable economic
growth was listed as the top priority for 2015 economic
policy. In our view, this means government policies will focus
on preventing downside risks, including macro risk and
financial risk. We believe, from the policymakers
2008
2009
2010
2011
2012
2013
2014F
2015F
perspective, the growth floor in 2015 is 7%. We expect that

the government will increase the central governments fiscal
deficit target, and shift towards more monetary easing using a
3

Haibin Zhu (852) 2800-7039
mixture of traditional (rate cuts and RRR cuts) and

unconventional monetary instruments. In addition, the
government will introduce measures to stabilize the
downward trend in manufacturing investment and real estate
investment, which have been a major drag for economic
growth.
Consumption remains a stable component

of growth
Consumption has been a stable source of growth. Retail sales
(in nominal terms) rose at a relatively steady pace around
12%oya through most part of this year (chart 3). Indeed, in
volume terms, retail sales have picked up some momentum
lately, rising at 13.4% 3m/3m saar by November. Overall,
final consumption contributed 48.5% of GDP growth in the
first three quarters of 2014 (improving modestly from 45.9%
during the same period in 2013).
We expect nominal retail sales growth to be relatively
stable at about 11.7% in 2015 (compared to the expected
11.9% growth in 2014). Considering that CPI inflation is
expected to ease to 1.5% in 2015 (from 2.0% in 2014), this
implies a modestly faster pace of retail sales growth in real
terms, with total consumption contributing about 3.5%-pts to
2015 economic growth.
Structurally, the gradual rebalancing of the Chinese economy
is supportive of relatively stable consumption growth, despite
the more notable slowing in fixed investment and the
manufacturing sector. It is interesting to note that the pace of
growth in tertiary industry (mainly service sectors) has been
relatively stable compared to the volatility in secondary
industry (dominated by manufacturing). The output share of
the tertiary industries has risen steadily from 43.2% in 2010 to
46.1% in 2013 (see Chart 4). In the first three quarters of this
year, tertiary industry activity expanded 7.9%oya,
outperforming the 7.4% growth in the secondary industry.
Rebalancing between the service and manufacturing sectors
has notable implications for the labor market. In particular, as
service sectors are generally more labor-intensive, such
structural adjustment in the economy should support
employment creation and help stabilize the labor market, amid
gradual slowing of the overall economy (chart 5). Indeed,
while Chinas 2014 economic growth (at 7.4%oya in our
forecast) likely will undershoot the governments 7.5% target,
new job creation in the first nine months, at 10.82 million, has
already overshot the governments full-year target of 10
million. As such, during the first three quarters of this year,
nationwide household disposable income per capita rose
8.2%oya in real terms (and 10.5% in nominal terms),
outperforming real GDP growth at 7.4% (and 8.5% in
nominal terms). Such relative stability of labor market
4
Economic Research
December 19, 2014
Chart 3: Retail sales growth

%oya, 3mma
26
Volume
22
Value
18
14
10
08
09
10
11
12
13
14
15
Source: NBS, J.P. Morgan
Chart 4: GDP by industry

% share of total GDP, 4qma
Secondary
industry
48
46
Tertiary
industry
44
42
40
06
08
10
12
14
Source: NBS, CEIC
Chart 5: employment and economic growth

million
million
New job creation per

unit of GDP growth
14
New job creation
1.8
13
1.6
12
1.4
11
1.2
10
1.0
0.8
04
06
08
10
12
14
Source: NBS, CEIC, J.P. Morgan
Chart 6: FAI growth by industry

%oya, 3mma
40
Total FAI
Manufacturing
30
20
10
Real estate
0
-10
2011
Infrastructure
2012
2013
2014
2015

Haibin Zhu (852) 2800-7039
Economic Research
December 19, 2014
conditions and outperformance of household income will

likely continue to support stable trend in consumption growth
in 2015.
Table 2: Nominal fixed asset investment (Yearly)
Fixed investment continues slowing

We expect FAI growth will moderate to about 14.5%oya (vs.
forecast of 15.8% growth in 2014). Amongst the three major
components of FAI growth, manufacturing investment, real
estate investment and infrastructure investment, the first two
categories will likely continue to show slower growth in 2015,
while policy support is expected to continue support solid
infrastructure investment (chart 6).
The real estate market slowdown has been the biggest macro
drag in 2014. Looking ahead, we expect real estate market
adjustment will continue in 2015, as oversupply remains in
the near term. Housing prices may decline further but should
stabilize in 2H15. From peak to bottom, we forecast the price
decline will be in the 5%-10% range at the national level, with
tier-2 and tier-3 cities generally facing greater price falls. Real
estate investment growth is likely to slow further to about 6%
in full-year 2015, from our 11%-12% projection for 2014
(Table 2). Thus, it likely will remain a major drag on
economic growth in 2015, further weighing on land sale
revenues and demand in related sectors, including steel,
cement, and furniture.
Manufacturing investment has slowed steadily in 2014, rising
at a modest pace of 13.5%oya during January-November,
compared to 18.5% growth in 2013. Considering the lingering
overcapacity problems in a number of manufacturing sectors,
and the renewed weakness in industrial profits in recent
months, manufacturing investment will likely remain
sluggish, with our forecast 2015 growth pace at 11.0%oya. On
the other hand, infrastructure investment will likely continue
to be supported by macro policy, which will likely continue to
rise at 21.6%oya in 2015 (compared to the forecast of 22.3%
growth in 2014).
%share
2013
2014e
2015f
(2013)
%oya
%oya
%oya
Total
100.0
19.6
15.8
14.5
Primary Industry
1.9
32.5
30.0
30.0
Manufacturing
34.1
18.5
13.5
11.0
- Textile and related industry
2.1
22.0
16.0
12.0
- Metal and commodities
10.4
17.8
12.8
8.0
- Machinery & electronic equipment
8.9
17.7
13.5
11.0
- Transportation equipment
2.8
15.3
13.0
11.0
Electricity, gas, and water production
4.6
18.4
16.0
16.5
Real estate
25.4
20.3
11.9
6.6
Infrastructure
17.6
20.8
22.3
21.6
- Transport infrastructure & construction
9.5
15.5
19.5
19.0
- Water conservation, environment manag.
8.1
26.9
25.0
24.0
Healthcare, social security, education, etc
3.8
22.2
23.0
25.0
Chart 7: Global economic growth and China's merchandise exports
J.P. Morgan
forecast
50
%oya, both scales
12
China's exports
Global IP
40
30
20
10
-4
-8
-10
-12
-20
-16
-30
07
08
09
10
11
12
13
14
15
Source: China customs, J.P. Morgan
Chart 8: China's current account surplus

J.P. Morgan
forecasts
% of GDP
12
10
8
6
Exports to hold up stable growth pace
The J.P. Morgan global teams baseline scenario for 2015 is

that the global economy will step up moderately to slightly
above-trend growth, led by the developed economies (chart
7). If realized, this will provide a relatively supportive
environment for Chinas export sector. Indeed, it is interesting
to note that net export's contribution to GDP growth picked up
notably this year: net exports contributed 0.8%-pt to overall
GDP growth during the first three quarters, while in
comparison net exports subtracted 0.3%-pt from overall GDP
growth in 2013. For 2015, we expect net exports to remain a
positive factor for growth, contributed 0.8%-pt to GDP
growth (reflecting the combination of steady export growth
03
05
07
09
11
13
15
Source: SAFE, J.P. Morgan
and lingering softness in import demand given weakness in

domestic demand and recent collapse in global commodity
prices). Current account surplus will likely increase further
from 3.2% of GDP in 2014 to 3.6% of GDP in 2015 (chart 8).
Meanwhile, it is worth noting that, at the global scale, growth
in the EM world will likely remain sluggish in 2015, hence
constraining certain part of demand growth for China's
exports. Besides, given the weakening of most non-USD
5

Haibin Zhu (852) 2800-7039
currencies in recent months, in REER terms, the CNY

appreciated notably by 6.8% for the five months ending
November. These factors will likely drag China's export
sector performance in the coming months, with our forecast
for 2015 export growth at 6.5%oya.
Economic Research
December 19, 2014
Chart 9: fiscal deficit

% of GDP
Central government fiscal deficit
Augmented fiscal deficit

(both central and local governments)
Fiscal Policy
The annual Central Economic Work conference continues to
adopt a proactive (expansionary) fiscal policy stance in
2015, which has remained unchanged since 2009. What is
different this time is an additional statement that proactive
fiscal policy should be stronger.
-5
-10
-15
2007
We expect the 2015 fiscal deficit to increase to 2 trillion

yuan (about 2.9% of GDP), compared to the fiscal deficit
target of 1.35 trillion yuan in 2014 (2.1% of GDP, see chart
9). Fiscal measures will likely focus on three areas.
2008
2009
2010
2015 will be an important year to implement this reform. We

expect the amount of local government bond issuance will be
increased from 400 billion yuan in 2014 to 1 trillion yuan in
2015, which explains the increase in fiscal deficit target. In
1Q15, existing local government debt needs to be reclassified, and commercial projects (e.g. commercial real
estate) should be sold to the market and the debt should be
converted into corporate debt. We expect the government will
give a grace period of 1-2 years to roll over existing public
projects, before new forms of funding schemes (local
government debt and public-private partnership (PPP)) will
take over. It is also worth noting that the fiscal authority may
introduce a multi-year budget balance system in 2015, using a
rolling-over three year fiscal plan to replace the current fiscal
budget on an annual basis (calendar year).
The second area is tax reform. The highlight is the VAT
reform (replacing business tax with value-added-tax), which
started in 2012 and now covers transportation, postal service
and tele-communication sectors. We expect the VAT reform
will be further expanded in 2015 to cover the whole service
6
2012
2013
2014f
2015f
Chart 10: Composition of tax revenue (2014ytd)

% share of total
Others, 19.2
The first area is budget management system reform,

especially for local governments. In 2014, the government
announced guidelines for the fiscal reform, and most fiscal
reforms should be completed by 2016 (China: the first step
in fiscal reform, October 9). Among the various measures
that have been announced, the new rules on local government
debt management are critical. The general principle is to
open the front door for funding local government spending
but close the back door. In particular, under the new
framework local governments can issue local government
bonds to finance public projects (the central government will
control the amount), but they can no longer raise funds via
corporate or financing platform entities.
2011
Source: MOF, CEIC, J.P. Morgan
Consumption,
7.7
VAT, 25.1
Individual
income, 6.1
Enterprise
income, 22.9
Business,
15.6
Tariffs, 4.8
Source: MOF, CEIC
sector (including financial service and real estate service). The

VAT reform, together with possible new structural tax
measures, aim to lower the tax burden in the service sector as
well as small and micro-size enterprises (chart 10). On the
other hand, the government will introduce resource tax and
environment tax, and real estate tax is likely to start the legal
process (which may take years before it will be officially
introduced).
The third area is public-private partnership. In May 2014,
the State Council announced that 80 projects were selected to
encourage social capital participation. In December 2014, the
Ministry of Finance announced 30 public projects as PPP
pilot exercise. PPP is an important initiative to reduce the
financing burden for local governments and to support private
investment in the long run.
Overall, we interpret the expansionary fiscal policy will be
reflected in an increase in the fiscal deficit target by the
central government. However, whether the proactive fiscal
policy will truly be stronger face a list of uncertain factors,
including the grace period policy for local government debt,
the magnitude of structural tax cuts, and the progress in PPP
implementation.

Haibin Zhu (852) 2800-7039
Monetary policy
On the monetary policy front, the Central Economic Work
Conference continued to use the phrase prudent, but added
that monetary policy should pay more attention to an
appropriate balance between tightening and loosening. In our
interpretation, monetary policy will shift towards further
easing in 2015, but in a contained manner to find the balance
between economic growth and financial stability.
We expect further monetary easing (concentrated in 1H15) in
response to weak domestic demand and low inflation
environment. Chinas CPI inflation has fallen from 2.5%oya
in December 2013 to 1.4%oya in November 2014, and
imported inflation slowdown (due to oil price collapse) adds
further downward pressure in the near term. Our forecasts
look for average CPI at 1.5% and average PPI at -1.5% in
2015. Inflation risk is not a policy concern, instead low
inflation and PPI deflation will become the bigger concern.
We look for at least one more rate cut, likely in 1Q15, as
well as two RRR cuts, of 50bp each, likely in 1Q15 and
2Q15 respectively (chart 11). In addition, there could be an
additional 100bp RRR cut if the regulator will include
interbank deposits in the loan-to-deposit ratio calculation
(which will increase statutory reserves). These policy moves
will likely be accompanied by other targeted quantitative
measures, including pledged supplementary lending (PSL),
standard lending facility (SLF), medium-term lending facility
(MLF) and open market operations.
In the first 10 months of 2014, the PBOC had refrained from
traditional monetary easing (rate cut and RRR cut), and had
adopted a new monetary policy operation framework with the
following features: (i) guide lower market interest rates and
try to establish an interest rate based transmission mechanism
(chart 12); (ii) use targeted quantitative measure (e.g. PSL,
MLF, targeted RRR cuts); (iii) adjust credit components to
improve the efficiency of credit support to the real economy
(via tightening rules on shadow banking activities), while
credit growth continues to slow down (chart 13 and chart 14).
The new operational framework aims to reduce structural
problems associated with traditional monetary instruments
(for instance, the unequal treatment between local government
entities / SOEs and small firms in the credit market) , but its
impact on bank lending rates has been limited.
The unexpected rate cut on November 21, 2014 is a signal of
changes in monetary reaction function. Weak domestic
demand and low inflation are the direct triggers of the rate
cut. On the other hand, the new monetary operational
framework seems to have limited impact to lower the average
bank lending rates to the corporate sector. In addition, lack of
transparency and administrative feature of the new operational
Economic Research
December 19, 2014
Chart 11: interest rates and RRR
JPMorgan
forecast
% pa
25
Required Reserve Ratio
20
15
1-year deposit rate
10
1-year lending rate
5
0
06
07
08
09
10
11
12
13
14
15
Source: PBOC, J.P. Morgan forecast
Chart 12: Lending rates

% pa
8
Weighted average
bank lending rates
7
10-year CGB bond yield
3-month Hibor
5
4
3
7-day repo
(weighted avg)
2
2012
2013
2014
2015
Source: PBOC, CEIC
Chart 13: Credit growth in China

%oya
Bank loans
35
Total social financing
Shaded: nominal
GDP growth
30
25
20
15
10
5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: PBOC, J.P. Morgan
Chart 14: Aggregate financing by type

Billion yuan
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
-1000
Source: PBOC
Jan-Nov
2013
Bank loan
Entrusted
loan
Jan-Nov
2014
Trust loan
Bank
Net
acceptance Corporate
bill
Bond
Financing
Non Fin
Enterprise
Equity

Haibin Zhu (852) 2800-7039
Economic Research
December 19, 2014
framework are also criticized. Entering 2015, we expect the

monetary authority to use a mixture of traditional and
innovative monetary instruments to achieve the priority task
of lowering the corporate funding cost.
CNY/USD, inverted scale

6.0
CNY/USD spot
CNY to remain relatively stable
6.3
From the macro perspective, we believe exchange rate policy

will be one of the most complicated macro policies for China
in 2015. Overall, on the external front, we expect Chinas
current account surplus to widen to 3.6% of GDP in 2015,
with CNY trading in a narrow range. The widening in the
current account surplus will reverse the steady downward
trend since the global financial crisis, reflecting steady export
growth on the back of the expected decent DM growth
trajectory, as well as recent collapse in oil prices (which helps
to reduce Chinas import bills). In particular, considering the
impact of oil price alone, we estimate that every US$10
decline in oil prices would to boost Chinas current account
surplus by about 0.3% of GDP.
Meanwhile, a strong USD should be a major challenge for
CNY movements in 2015. Our global forecast calls for a
strong USD against other major currencies, driven by the
divergence of monetary policy between major advanced
economies (the Fed likely will start hiking rates in June 2015,
yet we expect the BOJ and ECB to step up quantitative easing
policies). By extension, most emerging market currencies
may follow the EUR and JPY, falling against the USD, and
the risk of competitive devaluation cannot be ignored. If the
CNY appreciates against the USD, in REER terms, it would
be a drag on exports, which is one of the few bright spots in
the current economic outlook.
With the combination of widening current account surplus on
the one hand, and the strengthening USD trend on the other,
we believe the most likely scenario in 2015 is for the CNY to
trade within range (at between 6.10 and 6.30 against the
USD), and stay unchanged at 6.15 at end-2015 (chart 15 and
chart 16).
Economic reform will continue

We expect economic reforms will continue in 2015. The
priority areas are fiscal reform, financial reform, SOE reform
and household registration reform. In addition, low inflation
environment provides a good opportunity to push forward
resource pricing reform (e.g. water, electricity, natural gas,
transportation). Like in the past, the gradual reform approach
will be adopted to minimize resistance in each step and also to
keep potential risks under control.
Fiscal reform made encouraging progress in 2014, including
the announcement of fiscal reform plan, the revision of the
8
Chart 15: CNY/USD spot exchange rate vs. REER

Index, 2000 = 100
130
125
Appreciation
6.6
115
REER
6.9
2010
2011
2012
2013
120
2014
110
2015
Source: Bloomberg, J.P. Morgan
Chart 16: CNY: Spot deviation from mid-point

%
2.0
1.0
0.0
-1.0
-2.0
Jan 12
Jul 12
Feb 13
Aug 13
Mar 14
Sep 14
Apr 15
Source: Bloomberg
Budget Law, further expansion of the VAT exercise and tax

cuts for small and micro-sized firms. The fiscal reform will
continue in 2015, and we expect the three priority issues are:
(i) re-classification of local government debt and budget
management system reform for local governments; (ii) further
expansion of the VAT reform to cover the whole service
sector; and (iii) the application of PPP model in supporting
public projects.
Financial reform was further implemented in 2014, including
the increase of deposit rate premium from 10% to 20%, the
widening of daily trading band of the USD/CNY exchange
rate from 1% to 2%, the launch of HK-SH Stock Connect,
the approval of private-owned banks and the approval of three
Free Trade Zones (Tianjin, Guangdong, Fujian) after the
establishment of China (Shanghai) Pilot Free Trade Zone (see
more details in Ten Questions about China, November 28).
Entering 2015, we expect further progress in the following
areas: (i) official introduction of the deposit insurance scheme
and further expansion in the CD market (interest rate
liberalization); (ii) more channels in capital account openness
and lift in existing quotas (e.g. RQFII), and possible inclusion
of A-share in MSCI index; (iii) capital market reform, e.g. the
IPO system and de-listing system in domestic stock market;
and (iv) further promote RMB internationalization, with the

Haibin Zhu (852) 2800-7039
governments efforts to include renminbi in the SDR system

in the twice-a-decade review by the IMF in late 2015.
SOE reform aims to increase the efficiency of the SOE sector.
In addition to the pilot reform exercises for a few central
SOEs, many local governments also announced SOE reform
plan in 2014. The key issues to watch out are: (i) which
sectors can be classified as competitive and hence open the
access to the private sectors; (ii) the implementation of the
mixed ownership structure; and (iii) reform of the
management system of SOEs.
Household registration system reform seems to go ahead of
land reform and the effort to establish a unified social welfare
system. By breaking these reforms into small steps, it could
avoid a possible deadlock scenario. Household registration
reform will be implemented in small and mid-sized cities in
the coming years, by adopting a unified residence system. For
land reform, the near-term focus is to clarify land rights (land
ownership rights, contractual rights and management rights),
which may take several years but is a necessary step to allow
for transfer of management rights (the key to land reform) at
the national level.
Risk factors
Economic reforms will usually come together with significant
near-term risks, and the uncertainty in global economic
environment also adds uncertainty to Chinas economic and
policy outlook. In addition to the above baseline scenario, we
would like to highlight four risk factors in 2015.
The first risk factor is the evolvement in the real estate
market. Throughout 2014, the housing market has seen
decline in house prices (chart 17), housing transactions and
new home starts, and real estate investment has continued to
slow down. Our estimates suggest that real estate investment
slowdown (from 20% growth in 2013 to 11-12% growth in
2014) tends to drag GDP growth by about one percentage
point (including the impact on related industries), and may
further drag GDP growth by 0.6%-pt in 2015 (assuming real
estate investment growth will further slow down to around
6% in 2015).
We expect the government will continue to ease housing
policies in 2015 to slow down the adjustment process, and the
likely options include lower mortgage rates (due to rate cuts),
tax incentives and ease in down-payment requirement for
second mortgage (minimum 60% at the moment). Housing
market adjustment is likely to continue due to the oversupply
problem, but the momentum is likely to soften and house
prices may stabilize in 2H15 due to policy changes.
Economic Research
December 19, 2014
Chart 17: house price inflation

%oya
25
Tier-1 cities
National (100 cities)
20
Tier-2 cities
15
Tier-3 cities
10
5
0
-5
2012
2013
2014
2015
Source: Soufun, NBS, J.P. Morgan
Chart 18: supply indicator in the real estate market

Floor space under construction divided by floor space sold (both scales)
4.5
Residential
4.0
Office
3.5
10
9
8
7
3.0
2.5
2007
Other commercial real estate
2008
2009
2010
2011
2012
2013
6
5
2014
Source: NBS
Chart 19: Real estate investment

%oya, 3mma
80
60
Office
Residential
Total
40
20
0
2010
2011
2012
2013
2014
2015
Source: NBS
A big uncertain factor is the commercial real estate sector,

which accounts for about 25% of total real estate investment
and faces similar oversupply problem. The ratio of floor space
under construction to floor space sold has rose significantly in
both residential and commercial real estate sectors since 2010
(chart 18, although the ratios are not fully comparable
between residential and commercial sectors as a large share of
commercial property is for self use rather than for sale). While
residential real estate investment decelerated from 19.4%
growth in 2013 to 10.5%oya, ytd in November 2014,
commercial real estate investment only decelerated modestly
from 30.9% to 22.7% during the same period. In particular,
9

Haibin Zhu (852) 2800-7039
office building investment accelerated again in 2H14

unexpectedly (chart 19). Commercial real estate could be the
source of weakness in the coming years.
The second risk factor is global oil price shock. Global oil
prices collapsed in 2H14, which put downward pressure on
Chinas inflation dynamics (chart 20 and chart 21) but
supported the increase in trade surplus. The continuous
softness in global oil prices is overall positive for China, yet
the large uncertainty in oil price dynamics is a major risk
factor for China in 2015.
The third risk factor is CNY policy. The PBOC has
reiterated that CNY is close to equilibrium and USD/CNY
will exhibit two-side volatility going ahead. However, the
continuous strength in USD implies that, if CNY remains
stable against USD, then CNY will appreciate significantly in
REER term. This will add pressure on the domestic
manufacturers whose comparative competitiveness has
already deteriorated due to rising production cost and softer
global demand.
Against such a backdrop, it is likely that the PBOC may push
forward the exchange rate regime reform, by shifting from
USD/CNY bilateral exchange rate to a traded-weighted
currency basket (e.g. REER). Such a shift would imply
modest depreciation of CNY against the USD but modest
appreciation in REER term.
Economic Research
December 19, 2014
Chart 20: global oil price and China's PPI

%oya, both scales
100
80
60
40
20
0
-20
-40
-60
-80
2008
2009
10
China's PPI
5
0
OPEC basket
crude price
2010
2011
-5
2012
2013
-10
2015
2014
Chart 21: CPI and PPI inflation
JPMorgan
forecast
%oya
15
10
CPI
5
0
-5
PPI
-10
08
09
10
11
12
13
14
15
Chart 22: Total social debt
The fourth risk factor is the financial risk. Financial

imbalances have built up substantially. In 2014, the
government made some encouraging progress, including new
rules on local government financing and tighter rules on
shadow banking activities. Nonetheless, the debt level in the
economy continues to increase. We estimate that total social
debt rose to 220% of GDP as of September 2014 (compared
to 208% of GDP at end-2013, see chart 22). In addition, the
implicit guarantee phenomenon continued to exist, raising
questions on the pricing of risk in the bond market as well as
in shadow banking activities.
% of GDP
Corporate debt
250
Household debt
Government debt
200
150
100
50
0
2007
2008
Source: CEIC, J.P. Morgan
Financial-system risks, while elevated, are unlikely to evolve

into a full-scale crisis in the next couple of years. However,
complacency by policymakers and investors could be
misplaced. So far the government has attempted to find the
fine balance between containing increases in new risks and
tolerating the rollover of existing debt. This is a challenging
task. Especially when near-term growth concerns increase, it
may trigger shift in policy stance at the cost of financial
stability in the long run.
10
2009
2010
2011
2012
2013 2014.3Q

Lu Jiang (852) 2800-7053
Economic Research
December 19, 2014
Hong Kong: higher interest

rates and tepid growth
Hong Kong: economic indicators
External demand condition is expected to remain

constructive for Hong Kong next year
Private consumption is expected to improve only
moderately even with easing inflation pressure
Risks associated with anticipated interest rate hikes are
likely to be contained next year but cannot be neglected
Hong Kongs growth momentum has seen notable rebound in
3Q after experiencing a modest sequential contraction for the
first time since 2Q11. Private consumption and net exports
were the main drivers behind the latest rebounds, contributing
2.0%-pts and 1.6%-pts to the headline GDP growth. However,
because of rather soft growth momentum during the first half,
and raising domestic headwinds entering into 4Q, GDP
growth for this year is estimated to slow to 2.3%oya,
compared to 2.9% in 2013.
Going into 2015, external demand condition is expected to
remain constructive. Our global team expects global growth
to perform above-trend, with the US taking the leadership role,
together with a boost to DM demand from oil price decline.
This will provide a favorable backdrop for Hong Kongs
export sector. For the first three quarters of 2014, net exports
for the first time since 2009 contributed positively to real
GDP growth by an average of 0.6%-pts. Although average
exports growth was not particularly stronger than we initially
expected, it was weaker imports growth amid slowing
Chinese domestic demand that leads to the increase in net
trade. This trend is expected to carry into next year as well, as
Chinas economic growth is expected to moderate further,
with domestic demand (and particularly fixed assets
investment) expected to stay on the soft side.
Another channel that Chinas slowdown has been
affecting, and will continue to affect, in Hong Kongs
trade sector is service exports. After a few years of strong
expansions, China's tourist spending in Hong Kong has
slowed down since 2012 (first chart). The pro-democracy
protests that started at end-September were expected to carry
some impact on travel-related spending, though October retail
sales data suggested that the impact on tourist sector hasn't
been as severe as initially anticipated, partly offset by the
launch of new telecom product. However, the tech product or
holiday-driven sales performance will not last for long, and
fundamentals to support retail sales activity remains similar,
particularly as Mainland traveler spending is not likely to
perform on the strong side amid economic slowdown.
Average
2008-12
2013
2014e
2015f
Real GDP, % change
2.5
2.9
2.3
2.5
Consumption
2.8
3.0
1.6
1.8
Investment
1.0
0.9
0.3
0.3
Net trade
-1.3
-1.0
0.5
0.5
3.3
4.3
4.3
3.5
% Dec/Dec
3.2
4.3
4.3
2.9
2.7
1.0
1.5
1.0
Merchandise trade balance (US$bn)
3.0
-26.2
-28.6
-30.0
Exports
393.2
508.6
534.4
581.4
Imports
390.1
534.8
563.0
611.4
17.6
3.5
3.0
4.3
7.5
1.3
1.0
1.4
262.0
311.2
326.2
321.2

% of GDP
Hong Kong retail sales and Mainland tourism spending

%oya, both scales
25
40
35
20
Total retail sales
30
15
25
10
20
Mainland visitor
spending
15
10
5
04
06
08
10
12
14
Source: C&SD, CEIC
On the domestic front, we believe several factors may

work together and set the tone for moderately improving
private consumption. First, the decline in international oil
prices is expected to benefit next year's inflation outlook. The
weight of utility and travel-related components is about 9% of
the CPI basket, hence, a 30% decline in oil prices is estimated
to drive down headline inflation by about 0.9%-pt under the
assumption that the impact is all passed through. This will in
effect benefit households real income growth and hence
private consumption. In reality, we do expect headline
inflation to come down from an estimated 4.3%oya this year
to 3.5% in 2015. However, the moderation is mainly driven
by reduced contribution from food and housing components,
which has already been seen this year. Opposite to the
assumption, we will actually see a pickup in prices of
electricity, gas and water due to the expiration of
government's one-off subsidy from July 2014 and onwards.
This will then contribute about 0.8%-pt to headline CPI
between July 2014 and June-2015 due to the base effect.
Hence, the impact of lower energy prices to inflation will only
11

Lu Jiang (852) 2800-7053
become more notable in 2H15 as its contribution to headline

CPI will probably come down to about 0.3%-pt.
Secondly, our US team expects the Fed to start hiking
interest rates from 2Q15. Hong Kongs private consumption
is expected to be negatively affected by higher interest rates
as suggested by historical experience, though the drag could
be short-term if the external environment remains stable. In
addition, our property sector analyst expects Hong Kongs
secondary price to decline 5 10% for the coming year (refer
to Cusson Leung, Hong Kong property: swimming
upstream, Oct 2014), this will add some constraint to private
consumption expenditure growth as diminished household
wealth will restrain private consumption (first chart). Overall,
raising interest rate and property sector outlook will become
an offsetting factor to the lower energy prices. Hence, we
expect real consumption to grow moderately higher than this
year, at 2.3%oya in 2015 (vs. an estimated 2.1%oya for 2014).
Another major issue worth highlighting for Hong Kong is
the risk associated with elevated leverage ratio and
expected interest rate hikes. According to BIS data, the
household sector debt to GDP ratio picked up 13.2%-pts from
2007 to reach 64.2% by June 2014. Though not the highest
compared to other EM Asian countries, potential hikes to
interest rates could put some pressure on the household sector,
particularly as residential mortgages account for about 66% of
household debt. It is worth noting that our US team is
currently forecasting a total of 87.5bps Fed fund rate hikes for
next year starting from 2Q15. Our sensitivity analysis shows
that the mortgage to income ratio is to reach between 51.8%
and 57.6% if mortgage rates increase to 3-4%, compared to
the current level at 43.7% with mortgage rate at 2.15% (Hong
Kongs current house price/income ratio is about 13%). Hence
the affordability will deteriorate but not to a severe extent if
the magnitude of interest rate hikes is not drastic.
In this regard, the more alarming signal may actually
come from the corporate side, where debt has increased
92%-pts since 2007 to 224% of GDP. Hong Kongs position
as an international financial center may have contributed to
this seemingly excessive corporate debt accumulation.
However, as its credit extension to Mainland China has been
growing rapidly over the past few years (banking sectors
non-bank China exposure increased 254% from December
2009 to reach HK$3.9 trillion by June 2014), and it hasnt
been tested by a much higher interest rate environment
accompanied with slower economic growth, potential risks of
this part of exposure cannot be overlooked. However, the risk
on interest coverage ratio is not imminent under the
assumption of a gradual and manageable interest rate hike
environment, and indeed, the ratio for Hong Kong and
Mainland investment grade corporates has improved
12
Economic Research
Hong Kong: higher interest rates
and tepid growth
December 19, 2014
Hong Kong: property price and private consumption

%oya, both scales
60
Property price index
Private consumpiton
expenditure
15
40
10
20
-20
-5
-40
-10
94
99
04
09
14
Source: C&SD, CEIC
Mortgage affordability - monthly payment/income ratios

Mortgage rates
house
price/income
ratios
2.15%
2.50%
3.00%
4.00%
4.50%
5.00%
5.50%
20.2
22.6
23.9
26.6
28.0
29.5
31.0
23.5
26.4
27.9
31.0
32.7
34.4
36.1
26.9
30.1
31.9
35.5
37.4
39.3
41.3
30.3
33.9
35.9
39.9
42.0
44.2
46.4
10
33.6
37.7
39.8
44.3
46.7
49.1
51.6
11
37.0
41.5
43.8
48.8
51.4
54.0
56.7
12
40.4
45.2
47.8
53.2
56.0
58.9
61.9
13
43.7
49.0
51.8
57.6
60.7
63.8
67.1
14
47.1
52.8
55.8
62.1
65.4
68.7
72.2
15
50.4
56.5
59.8
66.5
70.0
73.7
77.4
67.3
75.4
79.7
88.7
20
Note: Assuming 35% down payment, 25-year mortgage
Source: CEIC, J.P. Morgan
93.4
98.2
103.2
Interest coverage ratio - EBITA/ Interest expense

Ratio
16
China Investment
Grade companies
14
12
10
Hong Kong investment

Grade companies
8
6
4
2
05
07
09
11
13
15
Source: J.P. Morgan Credit Research
moderately during 1H14 after deteriorating over the past four

years (Second chart). According to our credit research analyst,
the challenge for next year is probably more tilted towards a
lack of bond market access with rising interest rates.

Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
Economic Research
December 19, 2014
Taiwan: continues to ride on

the global recovery
Taiwan: economic indicators
Taiwans export and manufacturing sectors will

continue to ride the global recovery in 2015
Real GDP, % change

Consumption
Investment
Net trade
% Dec/Dec
Producer prices, %oya
Merchandise trade balance (US$ bn)
Exports
Imports
% of GDP
Total external debt, (US$ bn)
Short term
Total external debt, % of GDP
Total external debt, % of exports
Interest payments, % of exports
For Taiwan exporters, impact of above-trend growth in

DM world overwhelms the drag of slowing China
Global oil price fall acts as a positive terms-of-trade
shock for Taiwan, supporting domestic demand
Central bank to hold rates steady as inflation eases;
TWD likely to weaken moderately amid USD strength
The Taiwanese economy had been struck by a number of
negative external shocks since early 2011, including the Japan
earthquake and the related shock to the regional supply chain,
the European sovereign debt crisis, and the China slowdown.
By 3Q13, Taiwans export sector and industrial activity
finally returned to 1Q11 levels, and have since tracked a
steady upward trend (second chart). With manufacturing
activity essentially staying flat during 1Q11-3Q13, overall
GDP growth averaged at an average modest pace of 2.2% q/q
saar, with the major source of growth coming from the
domestic service sectors, including real estate, finance and the
tourism industries. Encouragingly, as the export sector and
industrial activity returned to growth in recent quarters,
manufacturing sector has resumed the leadership role in
growth (first chart, next page), with overall GDP growth
stepping up to an average solid pace of 3.7% q/q, saar for the
four quarters ending 3Q14.
At the global scale, our global team anticipates modestly
above trend growth in the global economy through the course
of 2015. Overall, G4 economies should benefit from the
fading of fiscal drags, supportive monetary policy (especially
for the ECB and BOJ), and the healing of credit markets from
earlier crises. In addition, the 40% fall in oil prices since
midyear is a positive supply shock (for the DM world in
particular), which will boost household purchasing power and
hence consumer spending. Overall, our global team estimates
that the fall in oil prices so far would point to a boost to global
growth of about 0.4% for 2015. Such a constructive global
backdrop would support some further steady expansion in
Taiwans manufacturing and export sector in 2015.
In addition, from the macro perspective, given Taiwans role
as a net oil importer, the recent significant decline in global
oil prices should be seen as a positive terms-of-trade shock for
the Taiwan economy. In effect, lower commodity prices
would help to ease input costs for the corporate sector, and
similarly lower CPI inflation should boost household real
13
Average
2008-12
2013
2014e
2015f
3.0
1.0
-0.2
2.3
1.4
1.2
0.9
-2.5
27.0
267.8
240.8
40.4
9.0
361.9
100.3
79.4
22
29
0.4
2.2
1.1
0.7
0.4
0.8
0.3
-2.4
-1.4
37.2
304.6
267.4
55.6
10.8
415.4
165.5
144.8
28
38
0.4
3.3
1.8
0.8
0.7
1.2
0.9
-0.2
-1.6
42.0
316.8
274.8
59.1
11.2
425.4
191.7
170.8
34
45
0.5
3.7
2.1
0.9
0.7
0.6
1.5
-1.2
-1.5
50.3
332.7
282.4
67.6
12.5
442.4
207.8
186.8
37
48
0.5
Taiwan: real GDP growth

JP Morgan
forecasts
% change
%oya
12
%q/q, saar
9
6
3
0
-3
-6
2011
2012
2013
2014
2015
Source: DGBAS, J.P. Morgan forecast
Industrial production and export volume

Index, 2011=100, sa, 3mma
Customs exports,
in volume terms
115
110
IP
105
100
95
90
2011
2012
2013
2014
Source: MOEA, MOF, J.P. Morgan
purchasing power. In all, easing commodity prices would be a

positive factor supportive of Taiwans domestic demand in
the coming quarters. Putting all factors together, our forecast
for Taiwans 2015 real GDP growth stands at 3.7%oya,

Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
compared against the forecast of 3.3%oya growth for full-year

2014. If realized, this will be the economys fastest annual
growth in four years. Regarding monetary policy, in view of
the decline in global oil prices, we expect Taiwans CPI
inflation to ease further in 2015 to an average subdued pace of
0.6%oya (compared to the forecast of 1.2%oya in 2014).
Taking into account the outlook of stable growth and subdued
inflation, the Taiwan central bank will likely hold policy rates
through the course of 2015.
Constructive outlook on external demand

Latest data suggests that Taiwan has been benefitting from the
steady improvement in the global economy so far this year. In
particular, export orders have continued to register solid pace
of expansion in recent months (up 29.9% 3m/3m saar in
October), led by DM demand (US and Japan in particular)
and in particular the impact of the smart phone production
cycle (tech export orders up 49.0% 3m/3m saar in October,
with tech IP up 27.0% 3m/3m saar).
Economic Research
Taiwan: continues to ride on the
global recovery
December 19, 2014
GDP by industry
Accomodation and
food services
Index, sa, 1Q2011=100
Finance and
insurance
Real estate
110
105
100
95
90
Manufacturing
Wholesale and
retail trade
2011
2012
2013
2014
Source: DGBAS, J.P. Morgan
Export orders from G-3 and China/ Hong Kong

Index, 1Q11=100, adjusted by trade prices, sa, 3mma
Export orders
from G-3
125
120
Export orders
from China/ HK
115
110
105
Looking ahead, the strong momentum in tech exports may

lose some momentum going into early 2015, as hinted by past
patterns of smart phone production cycles. In this regard, it is
worth noting that Taiwans manufacturing PMI eased for the
third consecutive month in November to 51.4 (compared to
the three-year high of 56.1 in August), with the PMI export
orders component similarly easing to 51.4, registering the
lowest level since August 2013.
Further out, Taiwans overall external demand will still likely
be supported by the general constructive outlook on the global
economy through most part of 2015, especially for demand
from the DM world. In particular, US trade data suggests that
imports from Taiwan have broadly tracked overall US imports
since early 2012, with the share of Taiwan imports tracking a
steady 1.7% of total US imports. From this perspective, our
US team expects US imports to rise at a solid 6.0%oya in
2015 (compared to 3.8%oya in 2014), hence hinting at
positive outlook for Taiwans external demand conditions.
Similarly, the outlook for some moderate recovery in the Euro
area would be constructive for Taiwans export sector.
On the other hand, lingering softness in Chinas domestic
demand could remain a concern. Nonetheless, in our view
DM demand impulse in aggregate still dominates Taiwans
external demand (recall that the G-3 accounts for more than
50% of Taiwans total export orders), while a significant
amount of Taiwans merchandise exports to China (shipment
to China accounts for 42% of Taiwans total exports) is
intended for processing and re-export by China, which is in
turn tied to DM demand (see: Taiwan recovers alongside
DM lift despite slowing China, January 17, 2014). It is thus
perhaps not surprising that the growth momentum in Taiwans
100
95
90
2011
2012
2013
2014
Source: MOEA, J.P. Morgan
Taiwan: tech and nontech manufacturing IP

%3m/3m, saar
60
40
Nontech IP
Tech IP
20
0
-20
2010
2011
2012
2013
2014
2015
manufacturing sector and overall IP stepped up solidly in the

past four quarters, despite the notable slowing in Chinas
domestic demand during this period.
Regarding the cyclical position in Taiwans industrial sector,
Taiwans total manufacturing inventory level, after falling
steadily in the twelve months through May this year, had
turned up moderately in recent months, rising 9.9% 3m/3m
saar in September, led by inventory buildup in the nontech
sector (up 14.1% 3m/3m saar). Nonetheless, considering the
solid gain in shipment, overall inventory to shipment ratio still
stays at modest level, registering at 1.02, sa in September,
which is close to the lowest level since early 2012 (first chart,
next page), suggesting that inventory conditions should not
14

Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
Economic Research
December 19, 2014
hinder manufacturing expansion going ahead, provided the

constructive external demand conditions are realized.
Taiwan: producer inventory and shipment
Global oil price fall as a positive terms-oftrade shock for Taiwan
115
At the global scale, the 40% decline in oil prices has been an
important event, with significant implications on global
inflation and growth outlook. In the case of Taiwan, the recent
rapid decline in global oil prices should be seen as a positive
terms-of-trade shock for the Taiwan economy. In effect, lower
commodity prices would help to ease input costs for the
corporate sector, and similarly lower CPI inflation should
boost household real purchasing power.
It is interesting to recall that, on a structural basis, the
Taiwanese economys terms of trade had worsened
substantially over the past decade (second chart). In particular,
Taiwans export prices have been tracking a modestly easing
trend (likely reflecting the fact that the countrys export
structure is highly geared to the tech sector where prices have
generally trended down). The general weakening trend in
export prices appears to have constrained Taiwans nominal
labor income growth, with nominal regular labor earnings
rising at a modest 0.7% annual pace over the past decade.
Meanwhile, Taiwans import prices, though much more
volatile, have risen significantly over the past decade,
reflecting the boom in global commodity prices, with notable
impact on domestic inflation. As a result, the average
Taiwanese household had been squeezed by the weakening
trend in export prices and the general rise in commodity
prices, hence constraining domestic consumer spending.
Index, 2011=100, sa
Ratio
Producer inventory
index
1.3
Inventory to shipment
ratio
110
1.2
105
1.1
100
1.0
95
2011
2012
2013
0.9
2014
Taiwan: Export, import prices and terms of trade

Index, 2011=100, NTD terms, sa, 3mma
Index, 2011=100, sa, 3mma
Import prices
110
Export prices
160
150
100
140
90
130
Terms of trade
80
120
110
70
100
60
03
05
07
09
11
90
13
Real labor income and private consumption

%oya
Real private
consumption
expenditure
Real total labor

income
Such unfavorable trend in Taiwans overall terms of trade

appears to be reversing lately. In particular, average nominal
labor growth had picked up steadily to 2.1%oya, 3mma in
October, compared to the average 1.0%oya growth in 2013.
Meanwhile, CPI inflation has eased notably in recent months
along with the decline in global commodity prices (see next
section). The combination of these factors, which will likely
carry on through 2015, should support some steady
improvement in real household purchasing power and hence
domestic consumer spending. We expect overall consumption
spending to contribute 2.1%-pt to headline GDP growth in
2015, compared to 1.8%-pt in 2014, and the average 1.5%-pt
in the previous five years.
Regarding the capex cycle, as the negative external shocks in
2011-12 gradually faded, Taiwans gross fixed capital
formation has grown steadily in recent quarters, rising
5.0%oya in 2013, and 2.4%oya during 1Q-3Q this year
(following the decline of 2.6%oya in 2012 and 1.2%oya in
2011), with particular impressive upturn in machinery and
equipment investment (last chart). Looking ahead, improving
2
0
-2
-4
-6
07
08
09
11
12
13
14
Fixed capital formation - machinery and equipment

%oya
% share of GDP, 4qma

% share of
GDP
60
% share of GDP historical average
40
12
10
20
0
-20
-40
-60
Real GFCF - machinery and

equipment
04
06
15
10
08
10
12
14

Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
global demand, if sustained, combined with lower input costs

given falling commodity prices, will likely pave the way for
further steady upturn in the manufacturing sectors capex
growth going into 2015.
Inflation eases on lower oil prices

Taiwans CPI inflation has been modest through 2014,
averaging 1.2%oya in our forecast. In particular, the easing in
global commodity prices, especially oil prices, has been
feeding through to guide Taiwans CPI inflation lower lately.
With regard to pipeline cost pressure, both wholesale prices
index and input price index (in local currency terms) have
eased notably, down 8.5% 3m/3m saar and 14.3% 3m/3m saar
respectively in November (the most significant pace of
sequential decline since early-2009). As such, Taiwans CPI
inflation will likely continue to ease going ahead. Our forecast
for 2015 CPI inflation stands at a subdued 0.6%oya.
On monetary policy, our baseline scenario looks for the
Taiwan central bank to keep major policy rates on hold in the
December monetary policy meeting. Looking into 2015,
taking account the general outlook of stable growth and
subdued inflation, we believe it is likely that the central bank
will continue to hold policy rates on hold through the course
of the year.
Fed hike, USD strength and Taiwan

On the external accounts, given Taiwans role as a net oil
importer (net oil trade deficit at US$28 billion in 2013), the
current account will likely rise further to 12.5% of GDP in
2015, compared to the forecast 11.5% in 2014 (and average
9.9% of GDP in the previous three years). Meanwhile, as our
global team expects the US Fed to begin raising rates in mid2015, and with USD strength expected to carry on through
next year, it would likely impact Taiwans external accounts
through capital flows. Broadly speaking, Taiwan has been a
net capital exporter, and is thus less vulnerable than EM
economies that rely heavily on foreign capital inflows to fund
domestic growth. Nonetheless, potential rise in global interest
rates could drive Taiwanese households and life insurance
companies to further diversify their assets overseas, hence
accelerating capital outflow, as was seen in 2005-07.
Economic Research
Taiwan: continues to ride on the
global recovery
December 19, 2014
Taiwan: headline CPI

%oya
JP Morgan
forecasts
4
3
2
1
0
-1
2010
2011
2012
2013
2014
2015
Taiwan: WPI and OPEC crude prices

%3m3/m, saar
%3m/3m, ar
WPI
15
150
OPEC crude
10
100
50
-5
-50
-10
-100
10
11
12
13
14
15
Source: DGBAS, OPEC, J.P. Morgan
Current account vs. capital and financial account

US$ billion
Current account
balance
20
10
0
Capital and financial

account balance
-10
-20
07
08
09
10
11
12
13
14
Source: CBC
Asian currency real effective exchange rates (REER)

Index, 2010=100
On the currency front, the sustained strength in the USD

against most other currencies, which will likely carry through
2015, hints at moderate weakening of the TWD bilateral rate
against the USD, considering the Taiwan central banks
general policy to maintain a largely stable trend in the tradeweighted exchange rate (last chart).
120
KRW
CNY
110
100
TWD
90
JPY
80
70
2010
Source: J.P. Morgan
2011
2012
2013
2014
16

Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
Economic Research
January 22, 2015
Disclosures
Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan
covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing
research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams may
screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail
research.disclosure.inquiries@jpmorgan.com.
Analysts' Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various
factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Other Disclosures
J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing
name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.
Options related research: If the information contained herein regards options related research, such information is available only to persons who have
received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,
please contact your J.P. Morgan Representative or visit the OCC's website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf
Legal Entities Disclosures
U.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC. U.K.: JPMorgan Chase N.A., London
Branch, is authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and to limited regulation by
the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from J.P. Morgan on
request. J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England & Wales No. 2711006. Registered Office 25
Bank Street, London, E14 5JP. South Africa: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities
Exchange and is regulated by the Financial Services Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong and/or J.P. Morgan Broking (Hong Kong) Limited (CE
number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is
regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No:
238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by
ASIC and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant
of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited
(Corporate Identity Number - U67120MH1992FTC068724), having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East,
Mumbai 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB 230675231/INF 230675231/INE
230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 010675237/INF 010675237) and is regulated by Securities and
Exchange Board of India. Telephone: 91-22-6157 3000, Facsimile: 91-22-6157 3990 and Website: www.jpmipl.com. For non local research reports, this
material is not distributed in India by J.P. Morgan India Private Limited. Thailand: This material is issued and distributed in Thailand by JPMorgan
Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and
Exchange Commission and its registered address is 3rd Floor, 20 North Sathorn Road, Silom, Bangrak, Bangkok 10500. Indonesia: PT J.P. Morgan
Securities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the OJK a.k.a. BAPEPAM LK. Philippines: J.P. Morgan Securities
Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the
Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the
Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo
Financiero is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange
Commission. Singapore: This material is issued and distributed in Singapore by or through J.P. Morgan Securities Singapore Private Limited (JPMSS)
[MCI (P) 199/03/2014 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. This
material is provided in Singapore only to accredited investors, expert investors and institutional investors, as defined in Section 4A of the Securities and
Futures Act, Cap. 289. Recipients of this document are to contact JPMSS or JPMCB Singapore in respect of any matters arising from, or in connection
with, the document. Japan: JPMorgan Securities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued
and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a
holder of Capital Markets Services License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a
member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia
Ltd. is authorized by the Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and

Haibin Zhu (852) 2800-7039
Grace Ng (852) 2800-7002
Lu Jiang (852) 2800-7053
Economic Research
January 22, 2015
custody, with respect to securities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad
Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial
Services Authority (DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.
Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of
publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This
report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by persons
who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be
engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in
their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not take
into account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to
any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has the
meaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, Frankfurt
Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The
1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons
Licensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may
be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative
warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx
website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, and
that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be
receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individually
agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd.,
Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan,
Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed to
from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of
the securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. Taiwan: This material is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan Limited). India: For private circulation only,
not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issued and distributed by JPMSAL in New Zealand only to
persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money.
JPMSAL does not issue or distribute this material to members of "the public" as determined in accordance with section 3 of the Securities Act 1978. The
recipient of this material must not distribute it to any third party or outside New Zealand without the prior written consent of JPMSAL. Canada: The
information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell
securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of
the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian
securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer
registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no
circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that
the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of
Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority in
Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein,
and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as professional clients as defined under the
DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.
or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative to
JPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for the
securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change
without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any
financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not
intended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own
independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.
affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments or
announcements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.
Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
"Other Disclosures" last revised November 29, 2014.
Copyright 2014 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan.

JP Morgan - Jan 2015 - Greater China Quarterly Report

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

JP Morgan - Jan 2015 - Greater China Quarterly Report

Uploaded by

Copyright:

Available Formats

Economic Research

JPMorgan Chase Bank, Hong Kong

Greater China Quarterly Issues

Economic Research Notes

2015 Economic Outlook: Taiwan

JPMorgan Chase Bank, Hong Kong

Haibin Zhu (852) 2800-7039

Key economic statistics

2013 Nom inal GDP, US$

Current account balance

Governm ent balance

Real GDP, %-ch over 1 quarter, saar

Consumer prices, %oya, average

Official interest rates, % p.a., end-period

Exchange rates, end-period

JPMorgan Chase Bank, N.A., Hong Kong

China: The magic "7"

China: economic indicators

Growth to moderate from 7.4% in 2014 to 7.2% in 2015

Real GDP, % change

Chart 1: Real GDP growth

% change, both scales

Taken together, we expect consumption, investment and net

Source: NBS, J.P. Morgan forecast

Chart 2: Contribution to headline GDP growth

On macro policy, at the annual Economic Work Conference

Source: NBS, J.P. Morgan forecast

perspective, the growth floor in 2015 is 7%. We expect that

JPMorgan Chase Bank, N.A., Hong Kong

mixture of traditional (rate cuts and RRR cuts) and

Consumption remains a stable component

Chart 3: Retail sales growth

Source: NBS, J.P. Morgan

Chart 4: GDP by industry

Source: NBS, CEIC

Chart 5: employment and economic growth

New job creation per

New job creation

Source: NBS, CEIC, J.P. Morgan

Chart 6: FAI growth by industry

JPMorgan Chase Bank, N.A., Hong Kong

conditions and outperformance of household income will

Table 2: Nominal fixed asset investment (Yearly)

Fixed investment continues slowing

- Textile and related industry

- Metal and commodities

- Machinery & electronic equipment

Electricity, gas, and water production

- Transport infrastructure & construction

- Water conservation, environment manag.

Healthcare, social security, education, etc

Source: NBS, J.P. Morgan

Chart 7: Global economic growth and China's merchandise exports

%oya, both scales

Source: China customs, J.P. Morgan

Chart 8: China's current account surplus

Exports to hold up stable growth pace

The J.P. Morgan global teams baseline scenario for 2015 is

Source: SAFE, J.P. Morgan

and lingering softness in import demand given weakness in

JPMorgan Chase Bank, N.A., Hong Kong

currencies in recent months, in REER terms, the CNY

Chart 9: fiscal deficit

Central government fiscal deficit