China Economic Update: The Softest of Landings

China recently released its major regular economic data dump, and the results were well, remarkably good. GDP growth tapered off ever so gently, retail sales growth accelerated, industrial production chugged along, fixed asset investment slowed slightly, trade volumes held up, property prices continued a gentle descent, and loan growth showed a cautious but somewhat easier pace, and inflation continued to ease-off. In essence the December data was consistent with a smooth and steady landing, with all the right spots showing the right signs. But where to next? Can we expect a continued pleasant ride, or are we on the cusp of turbulence? And what are the implications for investors?

Full story: http://seekingalpha.com/article/321399-china-economic-update-the-softest-of-landings

China Update: Something For Everyone

China pretty much wrapped up its key economic data releases this week. As always there's plenty of stuff for everyone amongst all the various data-points and sources. So this article attempts to digest some of the data and figure out what it means for the near and medium term outlooks for China's economy and markets.

http://seekingalpha.com/article/300780-china-update-something-for-everyone

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

Is China's Inflation Peaking?

China just released its regular monthly (and March quarter) data dump, and this article provides a brief update on two key statistics: GDP and CPI (for reasons which I will explain later). First up, a review of the results: Q1 2011 GDP growth came in at 9.7%, compared to consensus 9.4%, and previous 9.8%. Consumer price inflation rose to 5.4% in March, compared to consensus 5.2%, and previous 4.9%. So some very interesting results there.

http://seekingalpha.com/article/263862-is-china-s-inflation-peaking

Top 5 Economics Graphs of the Week - 16 Apr 2011

This week the focus goes entirely to China, with an overview of some of the key economic statistics released over the past week. We look at the GDP results, then summarize the inflation situation, followed by a look at retail sales growth and industrial production, finishing up with a snapshot of new loans.

1. GDP
China reported 1Q 2011 GDP growth of 9.7%, basically flat on the previous quarter's 9.8% (11.9% in 1Q 2010), and above consensus expectations of about 9.5%. China's economy is still being kept strong by surging investment, with fixed asset investment rising 25% in March to CNY 3.95 trillion, boosted by construction. Trade volumes are also running relatively strong. But GDP is only one part of the Chinese economic picture...


2. CPI
China reported inflation of 5.4% year on year in March, up from 4.9% in February (March 2010 2.4%), and above consensus 5.2%. Meanwhile the People's Bank of China Price Expectations Index dropped off to 72.8 from 82.7, further signaling a peak in inflation. With the People's Bank of China raising its main policy rate to 6.31% and average required reserve ratio to 20%, it is increasingly likely that inflation will begin to moderate, particularly as the effect of food supply shocks begin to wane. However with the Chinese economy still going strong and loan growth and money supply growth still at relatively high levels (not to mention loose fiscal policy) the all-clear cannot yet be sounded on inflation in China.

3. Retail Sales
China saw retail sales fall -1% from February where it fell -10% (-8% in March 2010). While on a year on year basis retail sales rose 20% (15% in March 2010) to 1.36 trillion yuan. Retail sales results were largely distorted by the holiday period, but the firm upward trend remains. What's more, the annual growth rate is much higher at present than during 2009. On a related note Per Capita Cash Income of Rural Households rose 14.3% year on year to 2,187 yuan, while Per Capita Disposable Income of Urban Households increased 7.1% to 5,963 yuan.

4. Industrial Production
China reported industrial production expanding 14.8% in March compared to last year, off slightly from 14.9% in February (18.1% in March 2010). Meanwhile the PMI indexes both rose marginally, with the official CFLP PMI rising to 53.4 from 52.2 and the HSBC/Markit PMI rising to 51.8 from 51.7 (and the non-manufacturing jumping to 60.2 from 44.1). The Chinese industrial engine is still running strong, particularly with the lifting of the energy limits of late last year. Demand is still running strong from infrastructure and construction projects, consumer spending, and in particular, export demand.

5. New Loans
Chinese banks lent a further CNY 680 billion during March, up from 535 billion in February (577 billion in March 2010), bringing the YTD total to 2.25 trillion. On a related note money supply continued to expand, with M2 up 16.6%, M1 up 15.0%, and M0 up 14.8% year on year. So the monetary part of the equation is still running relatively accommodative to economic growth. This despite moves to tighten monetary policy via several increases in the interest rate and required reserves to pull down inflation. The main lever the People's Bank of China has left to pull down inflation is letting its currency appreciate (which would also create somewhat of a wealth effect for Chinese consumers - which would be beneficial for outward investment flows and purchases).

Summary

So, one quarter into the new year and the key themes for China remain growth and inflation. The Q1 result showed the economy still surging along thanks to large scale construction projects, strong export volumes, and relatively robust consumer spending driven by rising incomes. But the key risk remains inflation. Inflation is a key risk for social stability, the sustainability of economic growth, and it is perhaps the number one catalyst for investment markets. So, as noted previously, it will pay to carefully and closely watch the course of growth and inflation in China this year.

Sources
1. National Bureau of Statistics www.stats.gov.cn
2. National Bureau of Statistics www.stats.gov.cn & 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/top5graphs16apr11.html

China Money Supply Keeps Expanding

China showed no significant let up in its money mills, with new loans still cranking out over 500 billion yuan a month, and money supply growth still expanding. China announced new loans in February 2011 of 535.6 billion yuan (about $80 billion US), versus consensus 650 billion, January 1,040 billion, and February 2010 of 728.5 billion. It would be a stretch to say that lending has slowed down significantly, but it is plausible to link it to moves by the Chinese authorities to crack down on excessive lending as part of their inflation fight (with inflation still running at 4.9%).

http://seekingalpha.com/article/258277-china-money-supply-keeps-expanding

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

China Jobs Market - Going Gangbusters?

I just came across a copy of the latest Manpower employment outlook report (pdf) for China - a unique and interesting data point given the relative lack of official employment statistics. And from my reading it looks like the job market of Zhong Guo is going gangbusters.

"In Quarter 4 2010, Chinese employers anticipate the most dynamic labor market since the survey began in Quarter 2 2005. With 53% of employers expecting to increase staffing levels, 2% forecasting a decrease and 32% predicting no change, the Net Employment Outlook stands at +51%."

The survey results are relatively extraordinary, indeed to some extent given the pattern on the chart below you may be tempted to call bullplop, but it is a very interesting metric from an analysis of the economic fundamentals point of view. A surface level analysis says it points to a very strong Chinese economy, of course the flipside could be that it points to an overheating economy.

So of course the next question is 'where are the jobs coming from?' what industry or industries could be behind the almost euphoric rise in hiring intentions? The chart below shows that it's relatively broad-based, but the standouts are "Finance, Insurance & Real Estate" and "Services".

On the first one; Finance - ok that's understandable, lending growth has been through the roof so of course banks need people to take care of all the things like lending, admin, collections, etc; Insurance - yup, that's fair, China is an emerging market in terms of insurance, underinsured by most standards; Real Estate - the main culprit? this one's surely a no-brainer given the recent (over?)investment trends underway in real estate, and that real estate does about 9% of GDP, and that there are property bubbles in SOME BUT NOT ALL parts of China.

And services, well sure why not, everyone needs services right? So under a rough tyre-kicking the results seem like they might stack-up. Isn't that interesting? It just shows you how hard an economic beast China is to analyse and understand, but onto the next logical question; what does it all mean? (so what?)

As noted at the start huge hiring intentions are great as a sign of the fundamental strength of an economy. More people with jobs means an eventual boost to the domestic demand aspect of GDP. And in a country like China more jobs means more stability amongst the populace - the last thing the Chinese government wants is a throng of unemployed (like the US has). So on the economic growth and stability front this is great!

But of course there's no free lunch in economics - the price of this euphoric job growth could be greater inflation (and the associated nasty flow on effects it would have). Obviously if hiring goes up then competition for skilled labor goes up, wages go up, wage increases get passed onto the consumer (usually), workers demand higher wages because of higher prices, and then the PBOC smashes the inflation out of the system.

OK so that may be a bit dramatic, but the point is that the risk of inflation goes up, and the risk of over-zealous monetary policy measures rises. So, ah, the bottom line is: grand hiring intentions is great, good for growth, good for stability, but almost surely comes with the risk of higher inflation...

Sources

Econ Grapher Analytics www.econgrapher.com

Manpower www.manpower.com

Article Source: http://www.econgrapher.com/6dec-chinajobs.html

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%.

Summary

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...

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

Article Source: http://www.econgrapher.com/top5graphs13nov.html

Top 5 Economics Graphs of the Week - 23 October 2010

This week the focus is on China, with the quarterly statistics out this week - as well as a surprise interest rate increase from the PBOC. Among the data we review in this edition is GDP growth, inflation trends, the interest rate decision, retail sales growth, and the continued rise of new lending.

1. China GDP
First up is GDP, China saw growth decelerate slightly to 9.6% year on year in the September quarter (or 10.6% YTD on YTD), down slightly vs the 10.3% growth rate in the June quarter. Some of the deceleration was due to a higher base comparison period, but also impacts from macroeconomic controls put in place by the government. So basically the Chinese economy is still tracking along at a relatively fast pace.

2. China Inflation Outlook
Of course the inflation outlook should also remain elevated. The September inflation figure was 3.6% vs 3.5% in August, and 2.9% in June. The PBOC Future Price Expectations Index was also recently released; rising to 73.2 from 70.3 as inflation expectations remain elevated. Much of the inflation result was driven by food prices. Overall the inflation outlook for China remains high, a simple convergence in the chart below should say that one or the other has to give soon (i.e. either higher inflation or lower expectations), but the fundamentals line up with rising inflation.

3. China Monetary Policy
So it's not a major surprise then that the PBOC raised interest rates, especially in the back drop of a series of increases in the Required Reserve Ratios for the banks. The People's Bank of China increased the main policy rate 25bps to 5.56% from 5.31%, as well as increasing the 1-year benchmark deposit rate 25bps to 2.50% from 2.25%, marking the first increase since 2007. The move is a logical response to the rapid growth in lending (more on that later), concerns about asset bubbles and overheating, as well as the usual monetary policy reason of higher inflation.

4. Retail Sales
The consumer spending data shows no tapering off either, with continued strong growth - a positive sign for an economy that is facing the challenge of rebalancing to a domestic demand vs export driven growth. The fastest growing categories were 'Gold and Silver Jewelry' (54.9%), 'Furniture' (39.6%), and 'Building and Decoration Materials' (39%), while the largest categories were 'Automobile' (CNY 148 bn), 'Petroleum and Related Products' (CNY 93.7bn), and 'Grain, Oil, Foodstuff, Beverages, Tobacco, and Liquor' (CNY 70.2 bn). So what does that tell us? Chinese consumers are spending most of their money on cars and driving, and spending on discretionary wealth or status items is rising fast. Which is not overly surprising given the per capita rise in income of 9.7% (driven by an 18.7% increase in income from wages and salaries).

5. New lending
The value of new loans is consistently rising in China, attracting the attention and action from the central bank. And wisely so, as the rapid pace of growth in loans threatens to blow out inflation, and potentially create overheating and asset bubble issues. But cultural and regulatory factors have dictated a relatively lower use of debt (as compared to e.g. the US). So lending growth may well be key factor in rebalancing China's economy - the key is getting it done sustainably, and avoiding the excesses demonstrated by the US experience.

Summary

So the Chinese economy is still going strong, judging by the data that was released this week. This is heartening given the slowing that we're seeing in several other key economies e.g. US, Japan... but at the same time the divergence in economic prospects has created tensions.

For China the outlook appears to be for continued strong growth, rising inflation; and accordingly tighter monetary policy conditions (which is good for the sustainability of the economic growth). There are promising signs on the rebalancing process in the consumer spending data (though more needs to be done), but also interesting signs around wealth and income levels.

The key risks for China's economy remain; inflation and overheating, potential impact from the global economic slowdown, the challenges in reorientating the economy to a domestic demand led strategy from an export led strategy, and policy risk (i.e. tightening too much too fast). Apart from that expect more of the same.

Sources:
1. National Bureau of Statistics www.stats.gov.cn
2. National Bureau of Statistics www.stats.gov.cn & People's Bank of China www.pbc.gov.cn
3. People's Bank of China www.pbc.gov.cn
4. National Bureau of Statistics www.stats.gov.cn
5. People's Bank of China www.pbc.gov.cn

Article Source: http://www.econgrapher.com/top5graphs23oct.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

Econ Grapher - Economic Calendar - 9 August 2010

Here's the Economic Calendar for the week commencing the 9th of August 2010. This week China takes the spotlight with its monthly data dump; there's new loans, money supply, trade balance, CPI, fixed asset investment, industrial production, PPI, and retail sales. Then on the monetary policy front there's Japan, and the US who both meet to review policy this week. The EU is set to announce its second quarter GDP results this week, and from the US will be CPI, UoM & ABC confidence numbers, and the trade balance. Elsewhere there's employment numbers from Australia, consumer confidence from Japan, and house prices in New Zealand.

(More commentary follows the table)

Day	Time (GMT)	Code	Event/Release	Forecast	Previous
MON		CNY	New Loans	600B	603B
MON		CNY	M2 Money Supply y/y	18.6%	18.5%
MON	04:00	JPY	Bank of Japan Monetary Policy Meeting (AUG 9)
MON	06:00	EUR	German Trade Balance (euros) (JUN)	12.0B	9.7B
MON	22:45	NZD	NZ Card Spending (MoM) (JUL)		0.4
MON	23:50	JPY	Housing Loans (YoY) (2Q)		1.0%
TUE		CNY	Trade Balance	19.6B	20.0B
TUE	04:00	JPY	Bank of Japan Rate Decision (AUG 10)	0.10%	0.10%
TUE	06:45	EUR	French Industrial Production (YoY) (JUN)	7.3%	8.2%
TUE	11:30	USD	NFIB Small Business Optimism (JUL)		89
TUE	18:15	USD	Federal Open Market Committee Rate Decision	0.25%	0.25%
TUE	21:00	USD	ABC Consumer Confidence (AUG)
TUE	22:00	CNY	CPI y/y	3.3%	2.9%
TUE	22:00	CNY	Fixed Asset Investment ytd/y	25.4%	25.5%
TUE	22:00	CNY	Industrial Production y/y	13.5%	13.7%
TUE	22:00	CNY	PPI y/y	6.1%	6.4%
TUE	22:00	CNY	Retail Sales y/y	18.6%	18.3%
TUE	00:30	AUD	Westpac Consumer Confidence Index (AUG)		113.1
TUE	00:30	AUD	Westpac Consumer Confidence (AUG)		11.1%
WED	09:30	GBP	Bank of England Quarterly Inflation Report
WED	12:30	USD	Trade Balance (JUN)	-$42.2B	-$42.3B
WED	18:00	USD	Monthly Budget Statement (JUL)	-$165.0B	-$180.7B
WED	22:30	NZD	Business NZ Performance of Manufacturing Index		56.2
WED	01:30	AUD	Employment Change (JUL)	20.0K	45.9K
WED	01:30	AUD	Unemployment Rate (JUL)		5.1%
THU	04:30	JPY	Industrial Production (MoM) (JUN F)		-1.5%
THU	05:00	JPY	Consumer Confidence (JUL)	43.9	43.6
THU	05:00	JPY	Consumer Confidence Households (JUL)	43.9	43.5
THU	08:00	EUR	ECB Publishes Monthly Report (AUG)
THU	09:00	EUR	Italian Trade Balance (Total) (euros) (JUN)		-1957
THU	09:00	EUR	Euro-Zone Industrial Production w.d.a. (YoY)	9.3%	9.4%
THU	22:00	NZD	REINZ Housing Price Index MoM% (JUL)		0.6%
THU	22:00	NZD	REINZ Housing Price Index (JUL)		3230.6
THU	22:45	NZD	Retail Sales (MoM) (JUN)	0.5%	0.4%
FRI	09:00	EUR	Euro-Zone Trade Balance (euros) (JUN)		-3.4B
FRI	09:00	EUR	Euro-Zone Gross Domestic Product s.a. (QoQ)		0.2%
FRI	09:00	EUR	Euro-Zone Gross Domestic Product s.a. (YoY)		0.6%
FRI	12:30	USD	Consumer Price Index Ex Food & Energy (YoY)		0.9%
FRI	12:30	USD	Consumer Price Index (YoY) (JUL)		1.1%
FRI	12:30	USD	Advance Retail Sales (JUL)		-0.5%
FRI	12:30	USD	Retail Sales Less Autos (JUL)		-0.1%
FRI	12:30	USD	Retail Sales Ex Auto & Gas (JUL)		0.1%
FRI	13:55	USD	U. of Michigan Confidence (AUG P)		67.8

Starting with the economy of the week, China will be reporting it's major data points this week for July. The first batch will likely be the data from the PBOC which includes lending data (which by the way will likely be fairly static around 600B as the regulators crack down on excessive lending), and money supply data, then there's the trade data from the customs department, which is likely to be unchanged, but as always - I'm keeping a close eye on the export/import levels as a kind of proxy for international trade volumes and as a bit of a gauge for global activity - i.e. if there's another major slump it will show up in Chinese exports. Then there's the data from the National Bureau of Statistics; inflation is likely to pick up a bit, and industrial production will likely follow the course suggested by the PMI readings i.e. down; the rest will likely be fairly standard.

Now, onto the monetary policy reviews; Japan is likely to be fairly ho-hum, to be sure - likely not to see any changes in the i-rate for quite a while; the only thing to watch for would be any additional stimulus measures e.g. the lending program they previously announced. The US is likely to be a similar story, but the rumors are increasing... or more likely the speculation is increasing that the Fed may implement additional stimulus measures to cement the recovery and counter any possibility of a double-dip recession (which remains a real risk).

Keeping with the US, there's also the other consumer confidence indicators from there; the ABC index, and the University of Michigan consumer sentiment index, the trade balance (which is expected to stay around negative 42B), the consumer price index (which is likely to show inflation around 1%), the monthly budget statement, and of course retail sales on Friday. The data points will add to the picture for the US economy, which is looking increasingly mixed - albeit weighted to the downside.

Elsewhere in the world there's the second quarter GDP figures from the EU, which will attract considerable interest given the recent financial system and sovereign debt concerns raised around there. Aside from the US, the other economies reporting confidence are Japan; which is expected to rise slightly, and Australia, which will likely be about sideways as the election draws near. The Aussies have also got their employment numbers out this week, which are likely to show continued jobs growth; likely better than New Zealand's results - who is set to release July house price data on Thursday.

So as always, have a great week, watch out for surprises, and stay tuned for updates...

Sources
DailyFX www.dailyfx.com/calendar
Forex Pros www.forexpros.com/economic-calendar/
Forex Factory www.forexfactory.com/calendar.php
Bloomberg www.bloomberg.com
+various statistics websites and central bank websites for verification

Article Source: http://www.econgrapher.com/9aug-calendar.html