Wednesday, January 20, 2010

5 Graphs From China

China today released its 2009 economic data smorgasbord, revealing a continually accelerating economy. This edition looks at 5 charts; economic growth - acceleration, CPI - inflation drivers pushing through, Consumer spending - domestic demand on the rise, Industrial production - still going strong, and International trade - still very important. The analysis shows implications for China's growth outlook, the evolution of its economic structure, and it's role in the global economy.

1. Economic Growth - GDP
Economic growth came in at 10.7% year on year, against estimates of 10.9%, and the Q3 result of 8.9%. Simply put, this is a good figure, the drivers are obvious though. For the full year it was 8.7% (above the targeted 8%) from 2008 to 2009, against 9.6% for the year 2008. The drivers of this phenomenal growth include the large stimulus package, rapid loan and money supply growth, a pick up in consumer spending, strong investment figures (related to stimulus), and a recovery in international trade.

2. Inflation - CPI
Chinese inflation for December came in at 1.9% year on year against expectations of about 1.5% and up off 0.6% in November. Part of this is the commodity cycle, but there are fundamental factors that make a case for accelerating inflation - basically the same mentioned in the GDP growth drivers, but add to that surging asset prices and a recovery in commodities. It's no surprise that the PBOC has begun a gradual tightening e.g. lifting the reserve ration for banks by 0.5%, gradually creeping the rate up a few basis points for bond issues, and generally warning banks not to lend excessively without adequate capital.

3. Consumer Spending - Retail Sales
In a very promising trend retail sales picked up further showing a year on year growth rate of 17.5% vs 16.4% expected. The chart below shows that we're not just seeing the low comparator effect, there is a real trend for increasing consumer spending. This is a promising sign for the Chinese economy in terms of the need for it to rebalance growth so that more economic activity is driven from internal/domestic demand, rather than relying primarily on an export led strategy. To complete though, a certain portion of this must be chalked up to stimulus, but this is a trend to watch!

4. Manufacturing - Industrial Production
Industrial production pulled back slightly to 18.5% in december from 19.2% in November, and below an expected 20%. On a full year basis it was up 11% in 2009. While slightly weaker it shows the manufacturing sector still going strong, in spite of a recovery in commodity prices, and with the PMI at 56.6 it's no surprise. This is probably driven mostly by stimulus and internal demand, but increasingly also international demand as trade has recovered - driven in part by the inventory cycle.

5. Trade Surplus - Annual Exports & Imports
China recorded a trade surplus of about US$198 billion in 2009. Exports were down 16% for the full year, while imports were only down 11%. In recent times the trend for this data has been clearly upwards since bottoming out in early 2009. This is surely only a temporary pullback but it is promising to see that imports didn't drop that much. What will be interesting over time is to track import growth - how far off until we see imports higher than exports would be very interesting to know in terms of China's role in the Global economy. For now international trade is still a key component of China's economic growth.

Overall, very interesting to add this data to the picture of the Chinese economy. It confirms views on strong and accelerating growth there, and as to be expected, raises concerns about potential for overheating. It also raises questions, but gives clues, as to where the Chinese economy is going, in terms of economic activity (probably still strong for now), changes in the structure of its economy (signs of a gradual shift emerging), and it's role in the global economy (getting stronger by the day). Above all it can only add to the view of strong long term growth prospects, and interesting times for all who live in China's ever growing shadow.

1. National Bureau of Statistics
2. National Bureau of Statistics
3. National Bureau of Statistics
4. Trading Economics
5. Trading Economics

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