China Economic Check-up: Nope, no hard landing yet folks

China just released its June numbers, with 3 separate official sources delivering banking and money stats, international trade stats, and the core economic data. The June GDP numbers were pretty strong in the scheme of things, and the rest of the data pointed to a high likelihood of persistence in economic strength, at least in the medium term. In this article we explore some of the key data points, and come to the conclusion that a hard landing/significant slow down is a not a 2011 story...

1. China GDP

China managed to show year on year GDP growth of 9.5% in the June quarter, which was slightly lower than the 9.7% it showed in the previous quarter and 10.3% in June 2010, and compares to a 10-year average of about 9.4%. So in the scheme of things GDP growth does not show a significant degree of slowing. However, if you redefined recession for China as passing below the long term average growth rate - rather than descending into the negatives, then China could dip just below that line later this year. So, in spite of a succession of tightening moves, e.g. the PBOC raised interest rates earlier this month, growth has not yet taken a hit, and it makes sense because the dual forces of strong underlying fundamentals as well as strong sources of manufactured growth e.g. social housing, persist - so sorry folks, no slow down or hard landing in 2011.

2. China inflation

But one area that persists as a weak-point or vulnerability is the surging inflation numbers. Inflation hit 6.4% in June (I was expecting about 6.5%), with most of that coming from food price inflation (14.4%), and non-food static around 3%. This remains a risk because if it gets out of control then it poses stability risks, but more importantly, persistently high and rising inflation will put pressure on policy makers to tighten the screws further on monetary policy - that could slow things down a bit more, and certainly put some headwinds in front of Chinese equities. But I'm seeing signs that this could be the peak - there are a few people out there that have been forever calling the peak - but things like a turn in the prices index part of the PMI, the tightening done to date, and market responses to high prices. The Yuan could be worked harder to achieve lower inflation outcomes, but it's no silver bullet either. I see inflation as a risk, but I can see a scenario where inflation starts to taper off.

3. PMI and Industrial Production

The industrial production figure was a slight surprise in that it broke from where the PMI suggested it should go. The figure came in at 15.1% y/y, up from 13.3% in May, 13.7% in June 2010. The official PMI dropped to 50.9 for June, from 52 in the previous month - this is one of the main areas that people have been pointing to for signs of a slowdown, and fair enough - new orders have trailed off , but still above the expansionary 50 point mark. So it's mixed signals from this one, July will tell if June was a quirk or a sign that the bottom has been hit on the slowing in industrial production growth - so watch this space.

4. International Trade

China reported another record month for exports, 162B for June, while imports trailed off some to 139.7B (high of 152B in March). So what are the messages from the trade results?, first off, net exports were positive for the quarter (about 47B vs 0 in the March quarter), so there was a decent positive GDP contribution from trade during June. So the upward trend in exports are a positive sign for China's economy, but also indicate a certain degree of strength in global demand, on the imports side, it almost sends a signal of lower import demand, some of this may be related to a tapering off in commodity prices, but it is something to keep an eye on.

5. New Loans

New loans in China has been the gasoline that has been fueling the heat in the property market, as well as wider influences such as inflation and general growth. There has been a range of moves designed to cap lending growth (including RRR hikes and tougher lending rules), but new loans are still going strong, YTD new loans are about 4 trillion yuan (about 5 trillion in H1 2010, and close to 8 trillion in H1 2009). It's no secret that this rapid expansion in lending is a risk area, and a lot of China bears have been pointing to this, as well as the local government debt issues. A lot of water needs to go under the bridge and a lot of info needs to come to light before the full view of what's really going on in China's property and lending markets come into full light, but for now, the still elevated rate of loan growth remains stimulatory for both the economy and property prices (also note on property prices, real income per capita rose about 7.6% in June y/y, compared to property prices about 5-6% y/y).

Summary

So, as always it was interesting to digest all the info in the June economic data reports from China. The high level view is that China's economy is still going strong, it is strong in many areas, and appears to have broad fundamental strength. Aside from fundamental strength China's economy is also boosted by expansionary policies such as the 10 million unit social housing project for this year - which will be loaded mostly in H2 in terms of construction starts. But aside from stimulatory polices and broad based strength, there are inevitably risk areas too, such as the overheating and inflation risks, the property market risks, and the local government debt risks. Evidence points to none of these coming squarely home to roost in 2011. If there's a slow down coming in China, it's a 2012 or 2013 story - so, no hard landing yet folks!

Sources

1. National Statistics Bureau www.stats.gov.cn

2. National Statistics Bureau www.stats.gov.cn

3. CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com & National Bureau of Statistics www.stats.gov.cn

4. China Customs www.customs.gov.cn

5. People's Bank of China www.pbc.gov.cn

Article Source: http://econgrapher.blogspot.com/2011/07/china-economic-check-up-nope-no-hard_16.html

Top 5 Economics Graphs of the Week - 12 Mar 2011

This week the focus is on China and monetary policy. First up we look at China's vital stats for February: inflation, retail sales, industrial production, and international trade. Some of the data is a little distorted due to the holiday season in China, but there are still some interesting insights. Finally we check out some of the seven interest rate changes that various central banks around the world announced over the past week.

1. China Inflation
China reported inflation of 4.9% in February, the same figure as in January. The figure was largely driven by food price inflation, with the prices of foodstuffs rising 11.0% but with non-foodstuffs also showing signs of life, rising 2.3% year on year. The other key category was housing, which rose 6.1%, showing the Chinese housing market is still chugging along, with a mind boggling rate of new buildings under way e.g. the government's 10 million unit social housing program. Overall, food prices are still the key driver, so it will be interesting to see whether food prices may normalize following some of the short-term supply disruptions. But there are also significant wages, capacity, and aggregate demand aspects to inflation, so it's likely that the People's Bank of China has some further tightening up its sleeve.

2. China Retail Sales
February retail sales slumped as expected due to the seasonal effect of the Chinese new year holiday period. However the February figure alone was higher than September 2010 (1.38 trillion yuan vs 1.35 trillion), so the upward trajectory is still firmly entrenched. And it's unsurprising, over the past 5 years urban per capita incomes have doubled to about 20,000 yuan in the 2010 year. The only thing to watch though is the rate of growth has tapered off a bit - this will be a key indicator to monitor over the next few months.

3. China Industrial Production
China recorded growth in industrial production of 14.9% year on year in February (compared to 12.8% growth in February 2010). In terms of sectors the fastest growing were General Purpose Machinery (22.8%), and Nonmetal Mineral Products (18.9%), while the slowest growing sectors were Textiles (8.5%), and Transport Equipment (12.8%). So the message was, basically China's industrial engine is still running strong, and the PMI figures have flagged this. February PMI was about 52 on both measures - indicating expansion. Industrial production is likely to continue to find strength from export demand, property construction demand, and government infrastructure spending demand. But to be sure, over time industrial production will increasingly find strength from domestic demand e.g. in the case of car sales - with massive sales of automobiles in China.

4. China International Trade
On international trade, China reported lower volumes and a -$7.3 billion deficit as seasonal factors bit into trade volumes. However, looking through the seasonal factors, on a rolling quarterly basis, and compared to last year, here's how it would stack up: in the 3 months to February 2010 exports were $400m vs $335m, imports were $390m vs $295m, and the surplus was $12.5m vs $40m. So the volumes are definitely up, but there is some tangible reduction in the trade surplus. Of course some are pointing to this alleviating some of the Yuan debate in the short term, but the PBOC is already starting to acknowledge the role of the Yuan in managing inflation, so watch this space.

5. Monetary Policy Review
On monetary policy, those that raised interest rates included: Thailand +25bps, Kazakhstan +50bps, Korea +25bps, Serbia +25bps, and Peru +25bps. Meanwhile New Zealand -50bps and Trinidad & Tobago -25bps reduced their main policy rates. The rate cuts were the exception, and New Zealand even more of an exception, as the move was motivated as a response to the earthquake. For the most part though the theme was a collective desire to anchor inflation expectations and avoid the second round effects of rising commodity prices. The UK notably didn't do anything, in contrast to the ECB - which suggested rates could rise as early as April. But then we wont be able to know their rationale until the Bank of England meeting minutes come out in a week or so.

Summary

So we saw inflation remaining high in China, which affirms suspicions around a swath of fundamentals that point to broad-based inflationary pressures. On retail sales, consumer spending maintained upward momentum overall, despite the seasonal effects of holidays. Likewise, industrial production showed no let-up, with a variety of factors supporting further strength in China's industrial engine over the medium term. As for international trade, a few quirks saw China report a trade deficit in February, but that's likely to quickly reverse, but there are some interesting trends unfolding. Looking more broadly at the world, the main theme of monetary policy decisions over the past week was the old chestnut of emerging market inflation, with banks looking to preempt second round effects of rising commodity prices. Question is, when's the PBOC's next move?

Sources
1. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
2. National Bureau of Statistics www.stats.gov.cn
3. National Bureau of Statistics www.stats.gov.cn
4. China Customs www.customs.gov.cn
5. CentralBankNews.info www.centralbanknews.info

Article Source: http://www.econgrapher.com/top5graphs12mar11.html

China Economic Update - 12 Dec 2010

China released its main economic indicators for November over the weekend, following the decision by the People's Bank of China to raise the required reserve ratio another 50bps. This article reviews some of the key data points in the release. We look at inflation, retail sales, industrial production, money supply growth, and new loans.

1. China Inflation
China saw a further spike in inflation in November with the year on year increase in the CPI rising to 5.1% from 4.4% in October. As with October much of the inflation was coming from food prices e.g. "foodstuff" inflation was 11.7% y/y and "non-foodstuff" was 1.9%. The figure came in higher than an expected 4.7% and provides a bit of justification to the PBOC lifting the RRR on Friday, but the question remains; will it need to do more? And how can it address the food price inflation issue? One easy answer could be to let the yuan appreciate and then import cheaper food, but then things are generally never as easy as they seem.

2. Loan Growth
In a similar vein, loan growth came in at 564 billion yuan vs 588 billion in October, pushing the total new loans within inches of the full year quota of 7.5 trillion yuan. So banks will either have to just go over quota - not sure how practical that is, or wait until existing loans are repaid before extending new loans over December. As for next year, in line with the "prudent" monetary policy rhetoric the quota is likely to be a little lower, possibly 6 trillion yuan. But keep watching this space - we all know what excessive loan growth can lead to (i.e. US, et al).

3. Retail Sales
Retail sales grew again around 18 or 19%, but dipped slightly month on month (seasonal) to 1.39 trillion yuan in November. Again one of the fastest growing categories year on year was "Gold and Silver Jewelry" at 67% (totaling 11.5 billion in Nov or 113.7 billion YTD), which is interesting; is it a wealth effect? are lots of people getting married? or are the Chinese searching for stores of value and inflation hedges? Probably the latter. On volume, automobiles and petroleum and related have dominated spending.

4. Industrial Production
Industrial production picked up slightly to 13.3% against 13.1% in Oct. The fastest growing sectors were general purpose machinery (19%), transport equipment (18.1%) nonmetal mineral products (18%), and electrical machinery & equipment (17.4%). So the industrial sector is still cranking away, churning out cars and various other machines and equipment. And given the record exports number in November it's likely that both external, but predominantly internal demand will sustain activity in the medium term (include government in the internal part).

5. Money Supply
Finishing up with money supply, M2 grew at 19.5%, M1 22.1%, M0 16.3%. Basically money supply growth is still carrying on at a relatively elevated pace, and this will put some pressure on inflation (but some money supply growth is needed). It's also worth at this juncture pointing out where some of the key rates are at, the PBOC's policy rate is 5.56% (the bank lifted it 25bps in October), the RRR is 18.50% (from the 20th of Dec), and the government bond rate was 3.96% at the end of Nov (up about 60bps since Sep, having not changed much off an average about 3.40% Jan-Sep). Monetary policy will likely be a hot topic in China in the short-medium term, but let's hope they get inflation under control and achieve a sustainable growth outcome.

Summary

It's always a good chance to get a feel for where the Chinese economy is when they release the monthly main economic indicators. Indeed, I always try to expand the range of indicators and data sources when it comes to analyzing China e.g. the Manpower employment survey. But anyway we can takeaway some conclusions from this review of the November data. First of all the rate of inflation is increasing, and it appears to be a tough problem to tackle. Second, loan growth and money supply growth are still going strong, and likely aren't helping the inflation fighting effort. Third, there is still signs of a pretty strong economy e.g. in the retail sales stats and the industrial production stats. So it seems, given relative economic strength that the authorities will have room to maneuver in bringing inflation down - but there is a palpable risk of overdoing things or forcing a slowdown (but then isn't that better than blowing a bubble?).

Sources
1. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
2. People's Bank of China www.pbc.gov.cn
3. National Bureau of Statistics www.stats.gov.cn
4. CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com & National Bureau of Statistics www.stats.gov.cn
5. People's Bank of China www.pbc.gov.cn

Article Source: http://www.econgrapher.com/12dec-china.html

Econ Grapher - China Update - August Data

In this report we look at the rise in inflation in the economy of China, followed by continued monitoring of the rise in consumer spending and domestic demand. Then we review the potential rebound in industrial production; looking also at its links with international trade. Finally we note how along with the trends in trade, how loan growth is playing into the dynamics of the global economy and the Chinese economy.

1. China Inflation
China's inflation rate rose to 3.5%, matching consensus, and up on July's 3.3% increase. The chart below shows the inflation rate rising in line with the sharp increase in the future prices expectation index, which is currently at 70.3, vs just 11.4 a year ago. The increase is as to be expected given fundamentals, and if past experience is a guide then the picture below is for further inflation to come - which will put pressure on the PBOC in setting interest rates.


2. Chinese Consumers - Retail Sales
The Chinese consumer showed further strength in August, with retail sales rising 18.4% year on year, reaching 9.75 billion yuan year to date. The trend is evidently upward, with the peak period close to spring festival yet to come (Chinese new year is in early February 2011). This chart is always an interesting one to monitor as it provides a good proxy for Chinese consumer spending, or the domestic demand component of China's economy. It heralds a shift in wealth, economic dynamics, as well as vast opportunities as per capita incomes rise.


3. China Industrial Production and PMI
Industrial production showed a rebound in August as hinted at by the PMI figures released earlier this month; industrial production grew 13.9% year on year, trumping forecasts for 12.9% and previous 13.4%. The rebound in PMI and industrial production is promising for the economy, but it could yet be too early to pick a halt to the decline; but one thing's for sure, and that's the recent rebound in trade - which could be triggering a second wave of activity.


4. China Trade Surplus
Indeed, China's trade figures showed continued strength in exports with exports growing 34.4% year on year to about $139 billion (July $145.5 billion), and imports growing 35% to $119 billion (July $116.8 billion), leaving a trade surplus of $20 billion (slightly down from $28.7 billion in July). The results show the rolling trade surplus picking up firmly, turning around the downward trend. One promising part of the results was that imports were growing faster year on year vs exports - which points to China's potential to start driving global growth and economic activity. The imports may also point to stronger domestic economy driven demand, as well as inputs for production and re-export.


5. Chinese Banks - New Loans
Finally, China saw a strong expansion in lending in August, with new loans by banks totaling 545.2 billion yuan. Year over year the figure was 134.8 billion stronger than in 2009, and up a strong 18%. The continued expansion of credit shows a contrasting strength in economic prospects as loan growth remains stagnant or even contracts in Europe and the US. But there is the need to remain vigilant about loan quality, and the perennial optimism and insistence of the banks about the triviality of stress tests is not cause for comfort- there is the potential that with such rapid and consistent loan growth that loan quality may have suffered in some cases; so keep an eye on loan impairments and bad debt provisioning.


Summary

As a brief summary we saw inflation rise again, but thought about how it could go higher yet. We reviewed the increasingly interesting retail spending data, and its implications for the outlook for domestic demand in the Chinese economy. Then we saw signs of a rebound in industrial production - as heralded by the PMI figures - and thought about how this may link in with the figures we're seeing in international trade. On the topic of international trade we thought about China's role in the global economy as it shows somewhat counter-cyclical growth in credit and lending - in contrast to more developed nations. The overall message is one of relatively strong activity in the Chinese economy, with a reasonably positive outlook - economic growth wise; but there are risks for the economy particularly around the aggressive expansion policies and inflation.

Sources
1. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
2. National Bureau of Statistics www.stats.gov.cn
3. National Bureau of Statistics www.stats.gov.cn & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
4. China Customs www.customs.gov.cn
5. People's Bank of China www.pbc.gov.cn

Article Source: http://www.econgrapher.com/13sep-chinaupdate.html

Top 5 Graphs of the Week: China July Data

This week we review some of the recent data out of China; first up is a look at the recent slowing in industrial production, followed by signs of slowing in consumer spending. Then we look at the inflation results, which show a potentially short term pick up in inflation. Finally we examine the growth of the money supply and growth in lending; where both measures are slowing due to recent policy moves to install a managed slowdown to counter potential overheating and asset bubbles.

1. Industrial Production
China recorded industrial production year on year growth in July of 13.4%, down from 13.7% in June, and above consensus 13.2%. The movement broadly lines up with the PMI, which tracked downward for the July reading, and saw the HSBC PMI drop below 50 for the first time this year, indicating a possible period of easing of industrial production. But while the short term trend may be down, it is still growing at a strong rate, and if you think about the strength in exports, the recent slow down may start to look increasingly temporary, or on the contrary the slowing of industrial production could end up flowing into lower exports. In thinking about the drivers of industrial production, the next chart may be of interest...

2. Retail Sales
Chinese consumer spending, as proxied by retail sales stats, saw a slight tapering off of the growth rate to 17.9% in July, down from 18.3% in June, and below consensus 18.3%. The stats here are again still relatively strong, but this is an area that the Chinese technocrats should put due attention on; this statistic is the greatest indicator of a potential rebalancing of the Chinese economy to being more domestic-consumption-driven. It is sustained and fundamental strength in this sector that will herald a new phase in China's economic development.

3. Inflation (CPI)
Moving on to a similar topic, inflation; CPI rose 3.3% year on year - in line with expectations, and up from 2.9% in June. Sure much of the result was driven by potentially shorter term food price inflation, but one thing of note on this chart is the PBOC Future Price Expectation Index. This leading indicator of inflation is still at elevated levels, indicating that there maybe latent inflationary pressure that still hasn't come through to the CPI stats yet. But it is interesting to analyse the Chinese situation at present; fiscal stimulus is high and expansionary, but at the same time monetary policy is relatively tight. It is probably this combination that is containing inflation for now. It is also interesting from the perspective that monetary policy could be loosened up if the slow down persists, but on the flip-side, any further tightening could have a disproportionate (negative) effect on economic activity. So this will be one to watch closely as well - but more in terms of monetary policy setting.

4. Money Supply
Keeping with monetary policy and inflation, one potential driver of inflation appears to be easing off; money supply growth. Year on year growth in M2 money slowed to 17.6% in July, from 18.5% in June; similarly M1 slowed to 22.9% from 24.6%, while M0 reduced to 15.5% from 15.6%. The slowing down of money supply growth may end up reinforcing other signs of slowing in activity in China, indeed the notable reduction over the past few months in the rate of expansion could in part explain some of the weakening in other activity indicators. This is likely an intentional policy action by the PBOC, and it may warrant closer monitoring if further signs of a slowing Chinese economy surface. But as explained in the next data point, at least there is room for increased stimulus.

5. Lending
This is a key aspect of China's managed slowdown, with the reduction and stronger enforcement of China's lending quotas for the banks (and the tightening up of lending conditions for property - in line with concerns about potential overheating of the property market), the rate of expansion of new loans has significantly decreased in recent months. New loans registered at CNY 532.8 billion in July, from CNY 603.4 billion in June; bringing the YTD total to CNY 5.16 trillion, vs CNY 7.73 trillion in the comparable period of 2009.

Summary

These days the focus on the data coming out of China is the existence of a slowdown; is it really a slowdown? is it just temporary? is it just government created? is it driven by faltering global demand etc. And to think, not long ago, the main concern was about overheating and asset bubbles! So this slowing down or tapering off is probably a good thing; it may allow the Chinese economy to undergo a period of consolidation as the stimulus measures are gradually withdrawn, and the ever so slow process of rebalancing gets underway.

By way of summary, industrial production is expanding at relatively high levels but the rate of expansion has dropped off noticeably in the past few months. Consumer spending likewise is still growing relatively high but tapering off. Inflation is showing signs of picking up, but potentially driven by short term food price inflation. Money supply growth is slowing down to pre-crisis/pre-stimulus levels, and lending growth is being constricted by policy measures designed to prevent asset bubbles and overheating.

So overall there's not too much to worry about for now as China undergoes a period of managed slowdown, but of course there is the risk that the slowdown becomes a route if global activity and trade drops off as rapidly and totally as it did during the height of the crisis; and of course there is policy risk - if the monetary authorities end up doing too much. So let's keep watching this space closely.

Sources
1. National Bureau of Statistics www.stats.gov.cn & CFLP www.chinawuliu.com.cn & Markit/HSBC www.markiteconomics.com
2. National Bureau of Statistics www.stats.gov.cn
3. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
4. People's Bank of China www.pbc.gov.cn
5. People's Bank of China www.pbc.gov.cn

Article Source: http://www.econgrapher.com/top5graphs14aug.html

Top 5 Graphs of the week - 17 July 2010

This week we look at some of the major data points out of the two economic juggernauts; China and the US. In particular we focus on China GDP, industrial production, and CPI for both China and the US, and the current path of the US trade balance.

1. China GDP
China, as expected showed signs of slowing down in the June quarter with year on year growth slipping to 10.3% from a blistering 11.9% in the March quarter this year. Year to date over year to date the economy grew 11.1%. The authorities appear to be reasonably successful so far at orchestrating a slowdown in order to prevent possible overheating. The September quarter is also likely to show a slower growth figure as the base period rises, and as industrial production continues to slow and global activity remains relatively subdued, however trade continues to recover.


2. China Industrial Production
On the Industrial production figures, China saw growth in industrial production slip to 13.7% year on year, compared to 16.5% in the previous month, but still up on the June figure of 2009, and still very much positive. But for the time being, and certainly the PMI points to it, Chinese industrial production is unlikely to grow at the same stellar rates that it enjoyed in the past, but the probable outcome is for slower growth, not negative growth...

3. China CPI
On the inflation front, the Chinese authorities claimed a small victory of sorts in keeping inflation below the 3% mark, with the figure coming in at 2.9% year on year, vs 3.1% in May. Inflation is still a risk factor in China, but the authorities are clamping down to prevent excessive appreciation in asset markets, and goods prices. For now it appears things are under control, but the inflation expectations are still relatively elevated.

4. US CPI
The US CPI report gave potential confirmation for the deflation hawks, i.e. those who are cautioning about the risks of the US entering into a period of deflation (where price movements are negative). Headline CPI was recorded at 1.1% vs a 2% climb the previous month, with energy prices taking a dent. Core inflation however managed a slight increase at 1% vs 0.9% in the previous month. Certainly the near term outlook is for relatively subdued inflation in the US with the only upside risks coming when economic growth picks up and if the loose monetary policy gets properly transmitted through, and of course the specter of redundant capacity materializes.

5. US Trade Balance
The US also reported its trade balance this week, with the May deficit surprising; widening to -$42.3 billion, from -$40.3 billion. However there was some good news within the numbers with exports increasing from $148.8 billion to $152.3 billion; and imports at $194.5 billion (up from $189 billion). The increase in absolute volumes is somewhat promising from an activity perspective, also much of the worsening of the deficit was in the non-petroleum portion.

Summary

As a brief wrap-up, the Chinese economy is still chugging along, but the impact of the authorities' controlled slowing, and the loss of momentum of the recovery is starting to show through; both in the activity indicators, and in price levels. For instance the drop off in industrial production, growth, and stabilisation of the inflation rate, give tentative evidence for preliminary success.

The US on the other hand is also cruising a long in its recovery; but keep in mind that the reset of this year is going to be much harder than the first part of the year. On the inflation front the CPI figures showed further deceleration of the inflation rate, and the risks are relatively low for a near term resurgence of inflationary pressure.

So overall for these two powerhouses, the recovery is well under way, but there are plenty of risks floating around in terms of the sustainability of the recovery.

Sources
1. National Bureau of Statistics www.nbs.gov.cn
2. National Bureau of Statistics www.nbs.gov.cn
3. National Bureau of Statistics www.nbs.gov.cn
4. Bureau of Labour Statistics www.bls.gov
5. Bureau of Economic Analysis www.bea.gov

Article Source: http://www.econgrapher.com/top5graphs17jul.html

China Report: PMI Numbers Indicate Possible Slowdown

China had its PMI numbers out today, with the official CFLP index registering at 52.1, down both against consensus estimates (Reuters) 53.1, and the May figure of 53.9. The HSBC index (which surveys 400 businesses, and is weighted to smaller/privately owned businesses than the CFLP index) confirmed the direction; down to 50.4 vs 52.7 in May.


So what do the PMI numbers tell us? Well for one thing the index is still just above 50 which indicates expansion. But the indexes have both fallen off notably, which indicates that expansion is slowing down. Note what I said in both comments: expansion. But also note the background - context is everything! There have been a number of moves this year made by the authorities in China to slow down the economy in order to avoid overheating (e.g. increasing the required reserves, clamping down on loan growth, allowing wages to rise - though that one's a positive or a negative depending on the sector, and starting to allow the Yuan to move a little).

So several key questions arise (and half of knowing the answer is knowing the right questions):
1. Is this slow down in the industrial sector purely a result of policy tightening?
2. Is the slow down a result of the waning or withdrawal of the massive stimulus measures taken in early 2009?
3. Is the slow down driven by a tapering off of international demand?


Of course, the long term story for China still remains bullish (and perhaps even more sustainable if policy tightening prevents bubbles), but it's looking increasingly like interesting times will arise over the short to medium term. The next big data release from China (which will contain GDP, as well as the usual CPI, industrial production, etc), which is due on the 15th of July, will be particularly interesting in this context. But of course, the near term outlook remains, as Premier Wen Jiabao said; "extremely complicated".

Sources
Econ Grapher Analytics www.econgrapher.com
National Bureau of Statistics www.stats.gov.cn
CFLP www.chinawuliu.com.cn
Markit/HSBC www.markiteconomics.com
Yahoo Finance finance.yahoo.com

Article Source: http://www.econgrapher.com/1july-chinapmi.html