Friday, November 12, 2010

Top 5 Graphs of the Week - 13 Nov 2010 - China Update

This week we review some of the key data and events in China over the past week. And what a week it was on the China front, with another 50bp hike to the required reserve ratio, and the market closing down just over 5% on Friday. The data we chart in this edition is China inflation, industrial production, international trade, retail sales, and loan growth.

1. China Inflation
China surprised the market with its October inflation data showing CPI up 4.4% year on year, vs an expected 4.0% and previous 3.6% (inflation was in negative territory this time last year). Much of the increase in inflation was driven by food prices.

2. China International Trade
China saw its trade surplus expand to $27 billion in October, vs $17 billion in September. Exports fell from September to $136 bilion from $145 billion (up 22.9% year on year) and imports fell to $109 billion from $128 billion (up 25.3% year on year).

3. China Industrial Production
China saw a slight slowdown in the expansion of the pace of industrial production in October, with the rate dipping to 13.1% from 13.3% in September; the PMI series on the other hand increased during the month with the HSBC index hitting 54.8 vs 52.9 and the CFLP rising to 54.7 from 53.8.

4. China Retail Sales
China saw a further all time record in retail sales, with October recording 1.43 trillion yuan in sales, up 6% from September, and up 22% year on year, as the end of year spike starts to come in prior to Chinese new year.

5. China New Loans
China saw new loans of 587.7 billion yuan in October (595.5 billion yuan in September), which along with the acceleration of inflation prompted the People's Bank of China to raise the required reserve ratio another 50 basis points. Money supply also continued to expand, with M2 up 19.3% and M1 up 22.1%.


So it was an interesting week on the China economic front. The acceleration of inflation, spike in new loans, and small monthly increase in property prices prompted the People's Bank of China to raise the required reserve ratio again, and probably paved the way for another interest rate increase before the year is out. But also of interest is the continued improvement in retail sales - an increasingly important indicator for China. And of course the trade figures almost look concerning with a bit of a drop in imports (will be following the November data closely). So it is interesting times in China, and with the speculation of further tightening from the PBOC, the Shanghai Composite Index fell 5% on Friday. But if anything it's probably a good thing - it means the economy is growing strong, perhaps too strong, and that tightening policy is actually a good thing as it may help make the economic expansion more sustainable. So if anything drops in the Chinese stock market could well be looked at as buying opportunities. Watch this space...

1. National Bureau of Statistics & People's Bank of China
2. China Customs
3. CFLP & Markit/HSBC & National Bureau of Statistics
4. National Bureau of Statistics
5. People's Bank of China

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