China’s economy in Nov looks similar to Oct, i.e. stabilization at the bottom.Meanwhile, financial data such as money growth could remain expansionaryas a result of policy easing. The divergence between soft economic androbust financial data indicates a lack of confidence, as corporates arehoarding cash instead of spending it. GDP growth in 4Q15 could be largelyflattish vs. the previous three quarters at around 7% YoY. After big cycles(before 2010) and mini-cycles (2010-2013), the Chinese economy in the pasttwo years might be remembered for having no-cycles (Fig 1).
Headwinds and tailwinds: Currently, the economy is traipsing a subtlebalance between various headwinds and tailwinds. Headwinds include: (1)weak property investment; (2) commodity price deflation; (3) weak businessconfidence. Tailwinds include: (1) policy easing; (2) resilient growth inconsumption and the service sectors; (3) Pick-up in discretionary spendingsuch as auto sales following improved property sales.
Confidence is key: In normal times, current risks are tilted toward the upside.Why Because leading indicators, such as strong money growth, improvingfunding conditions for FAI and low inventory levels, all point to a cyclicalrebound in the near term. However, now is not normal. The Fed is set to hikerates in Dec. The dollar has regained strength (up 6% since mid-Oct) andcommodity prices have crashed again. Though we believe China has morethan enough policy tools to weather the storm, all this could still put hugepressure on business confidence, which is key to an economic recovery.
Activity data largely flattish: Nov NBS PMI data (due on 1 Dec) could edgeup to 49.9 after staying flat at 49.8 in Sep and Oct. Daily coal consumption forpower generation improved slightly from Oct, suggesting stabilised, albeit stillsubdued, industrial activity. We expect industrial production (IP) growth to pickup to 5.7% yoy in Nov from 5.6% in Oct. (See left table for the forecasts)
Stable FAI and better trade growth: We expect fixed asset investment (FAI)growth to be flat at 10.2% yoy for Jan-Nov. Infrastructure investment couldaccelerate due to improved funding conditions from fiscal easing, but propertyinvestment could still drag because of inventory overhang. We expect exportand import growth to improve in Nov, thanks to favourable base effects. Thatsaid, given the weak global growth and falling commodity prices, China’strade outlook remains challenging.
Disinflation pressure lingers: CPI inflation could remain flat at 1.3% yoy inNov. High frequency data show that the drop in pork prices has intensifiedgoing into Nov, which will weigh on overall food price inflation. Meanwhile, weexpect PPI deflation to narrow to -5.7% yoy in Nov from -5.9% in Oct, in partdue to a lower base. However, oil prices have slumped another 10% sincemid-Oct. Prices of industrial metals also plunged as copper hit a six-and-ahalf-year low. As such, deflationary pressures will persist in coming months.
Loose credit and weaker RMB: We expect robust new bank loans and M2growth in Nov (Rmb800bn and 13.4%). In view of the weak economy andmounting deflationary pressures, we expect one more RRR cut by year-end.The chance of another rate cut by year-end, though not our base case, isbecoming higher. In the near term, the RMB will likely continue to graduallyweaken against the USD given the broad strength of the greenback. But wedon’t expect a big devaluation. In this turbulent environment, stability will be apriority for China’s policymakers.
首页
微信公众号
证券之星APP
