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

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

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

China Economic Outlook: Monthly Data Update

China just released its monthly economic data update; in this article we review some of the numbers on inflation, retail sales, industrial production, lending growth, and money supply. The main themes from the data suggest the economy is still growing strong, and that the outlook is for continued expansion of activity. However given the still stimulatory policy stance, the data adds to a view of increasing inflation, and risks of short-medium term overheating.

1. CPI Inflation
China showed further signs of increasing prices as inflation rose to 2.8% year on year in April vs 2.4% and consensus 2.7%. However much of the increase was related to increased food price inflation, but the overall trend of increasing prices has been flagged by the quarterly inflation expectations index (see the chart below); and lines up with the thinking and observations of most internal and external analysts which suggests the Chinese economy is showing signs of overheating. The near term outlook for inflation will most certainly be for continued rises in the near term, probably breaching the 3% target within a month or two.


2. Retail Sales
Moving on, an indicator of Chinese domestic consumer spending, retail sales, increased a further 18.5% year on year; pulling back slightly from the seasonal peak earlier in the year, but beating consensus 18.2% and previous 18%. Retail sales is an interesting metric to watch in light of the Yuan/global imbalances debate; part of the cause of the global imbalances was under-consumption in China vs over-consumption in the US. So continued growth in this metric may be promising in terms of that relationship - but old habits die hard. The more important point to take is that retail sales are consistently rising, which adds to the long term opportunities for investment in China.


3. Industrial Production
On the flip-side of retail sales, industrial production grew another 17.8 in April, which was below consensus forecasts for 18.5% (and March 18.0%). The slight decline was flagged by the April PMI figures (charted along side industrial production below). It's hard to say that it's a negative at this point given the magnitude it's still at, but it will pay to monitor this metric as stimulus spending gets wound back, and potential tightening steps up - and of course, as the global context adds complications (à la Europe) in terms of export related demand. In a similar vein, urban fixed asset investment continued to boom, rising 26.1% - matching consensus, but slightly below 26.4% in March.


4. Loan Growth
Incredibly topical, given concerns about Chinese overheating, and policy moves already taken to crack down on excessive loan growth, the stats for April will give no comfort for those with concerns of overheating. New loans were up CNY 775 billion, sending new loans year to date above CNY 3.5 trillion (which is high historically, but below the CNY 5 trillion this time last year, spurred on by the government to help stimulate the economy during the global financial crisis). On a year on year basis this puts loan growth at 24% and lifts total loans above CNY 46 trillion. So this is a positive in terms of its stimulatory effect on the economy, but a negative in terms of the inflation/overheating context.


5. Money Supply
In a similar track, money supply - a key monetary metric, and important facet to the inflation picture - saw continued growth in April. On a year on year basis M2 grew 21.5% vs consensus 22.1% and previous 22.5%. So the rate of increase is slowing slightly, but it's still expanding at a reasonably rapid pace. M1 expanded 31.2%, while M0 grew 15.9% even after a slight seasonal pull back. To some extent the pace of growth in China can probably absorb some of the large expansion in the money supply, but there will certainly come a point where its influence will become increasingly inflationary. But as with loan growth - it lines up with comments by officials along the lines of being concerned about inflation, but happy to keep conditions relatively stimulatory to help the cement the recovery, and boost growth.


Summary

So the main themes to draw from the data would be, that growth is still strong, activity is still expanding, and that fears about overheating and rising inflation aren't without support. Inflation is rising, and though in the short term some of the drivers are temporary, the medium term outlook is for continued rises in prices.

On consumer spending, the trend is still strongly upwards, reflecting rising wealth and incomes, but is unlikely to herald a shift in savings habits. Meanwhile on the industrial production front, there is potential early signs of slowing - but even so still growing at a strong pace, but one to watch as things unfold.

On the monetary analysis, loan growth is still strong, and money supply is still expanding at a fast rate. The measures announced by the government will likely limit loan growth from rising at the same pace as last year, but both measures are clearly expansionary at this point.

So overall, the outlook is for continued growth in activity, and if things keep up, probably another double digit GDP growth figure in Q2. And the long-term story of economic growth in China stands. But given the still very much stimulatory policy stance (in spite of the reserve requirement increases), the risks of overheating and increasing inflation are certainly rising, and may force the government's hand in policy tightening or alterations sooner rather than later.

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. 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/11may-chinaupdate.html

Top 5 graphs of the week

Econ Grapher's Top 5 Graphs of the Week
There were a number of interesting data releases over the week, this article (the first in the series) sets out some of the more interesting graphs that were either updated, featured, or just generally of interest in the context of the week that was. In this article I show you graphs on US house prices, US consumer confidence, Japanese exports, Chinese loan growth, and a snapshot of US markets year to date. Enjoy, and be sure to look out for next week's top 5 finance and economics graphs of the week.

1. Green shoots in house prices?

This one paints a good picture of the US housing market, if you look carefully you can see what may be a tiny green shoot on the monthly % change data (but then it's not too hard to record gains when you've fallen that hard for that long).

2. US Consumer Confidence, or (still) Lack Thereof

The US consumer has become a little more confident, but sadly is still very depressed. With the high jobless rate, low house prices, questionable market outlook, and GDP record, it's hard to stay positive - but at least you can (*could) trade that clunker in for a new car.

3. Japanese Exports - Down, way Down, but not out yet

Were it not for China this chart may well look even poorer, Japan's exports have been hit hard - they're at low levels not seen since about 10 years ago. No surprise. The only good thing to say about this chart is the slight and gradual pick up in recent months, still it's likely a long hard road out.

4. China's Rapid Loan Growth

Beijing said to its banks that it wanted them to lend at least 5 trillion yuan in new loans - the total new loans in July YTD was about 7 trillion. This is fascinating in the global context - Russia's banks have completely tightened up, and in most western countries it is still very hard to get a loan (as well, there is less demand for loans as deleveraging is the word du jour). So it is unique and mostly state driven, and it is having a positive impact (on stock prices and property prices), and is among the factors that are helping China buy time while the rest of the world recovers... Next week I'll include a chart on China's money supply.

5. US Markets Year to Date... Draw your own conclusion!

I will let you draw your own conclusions, but I will give some context. The data is indexed at 100 at the start of the year, and I've used weekly % changes for the relevant closing metric. AIG is adjusted for the rejiggering of the shares on issue. The main indices give you a feel for the overall market sentiment, the interest rate gives you a feel for the inflation outlook and panic level (low i-rate means lots of buying i.e. lots of shelter seeking), and AIG and C give you a feel for relative optimisim (i.e. low prices on these two indicate a feeling that doom has not yet passed versus swing for the fences - we're out of the woods).