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By Todd Woods,2014-09-22 12:59
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Whatwhat,What,WHAT

    What

WhatIstheEconomyReallyDoing

    ;andWhereIsItGoing?

    ;ByStephenGreen,LanShen

    ;.Q4GDPgrowthcomesinstrongerthanexpected,at8.9%Y/Y;2011growthwas9.2%

    ;.Growthproxiessuggestnoseriousdeteriorationinactivity,thoughinvestmentisweakening

    ;?Thepropertycorrectionisnowhappeninganditwillbedeep ;China’sofficialGDPstatisticssaytheeconomygrew8.9%in0-4-2011.and9.2%fortheyearprettyquick.

    Givenwidelyheldex-

    ;pectationsofaslowerQandgen

    ;eralscepticismonChinaseconomy, ;somemightwonderwhetherthese ;numbersareaccurate.Attimesof ;stress.weknowthatChinasGDP

    ;numberscanappearalittleweiM. ;Inlate2008,werecommendeda

    ;numberofgrowthproxiestowatch ;incasetheGDPnumbersbecame

    ;lessreliable,includingelectric

    ;ityproduction,freighttraffic,,and ;productionofkeyindustrialgoo&. ;Alloftheseproxiessuggesteda ;deeperdownturninlate2008and ;carlr2009thantheoffi,.cialGDP ;numbersshowed.Inthisnote,we ;checkinonthoseproxies.andthey ;suggestthattheeconomyis:indeed ;continuingtoexpand,albeitata ;moremoderatepacethanjtn2011. ;Wealsotakeaquicklook

    ;aroundthepropertysectoL.?,e

    ;findthattheconstructionslow

    ;downhasdearlybegun,andwill

    ;getdeeper..Thereisstilllconsider- ;ablepainahead.

    ;TheDecemberdata

    ;investment-ledslowdownisinplay.Fixedassetinvestment(RI)fe11sharplyinQ4.In

    ;nominalterms,y/yFAIgrowthdroppedto20.4%inQfrom29.5%in03),andinreal

    ;termsitslidto12.3%from20.6%priorOeeC1hart3).Thisiswheretheslowdown:tscon ;centratedasbothin.frastructureandtheproper~sectorsufferacontinuingcreditcrunch.

    ;Industrialproduction(IP),however.,remainsrobust.,growing12.8%v/vinDecem- ;her(against12.4%inNovember)..TneNationa1BureauofStatistics(NBS’)evenclaims

    ;thatIPgrewbysome1%m/mineachmonthofQ4,evenwhilethePMI:indexfor ;manufa,~cturingflatlinedaround50.ItispossdethattheunweightedPMIisnotcapCur- ;inggrowthatlargerfirms.

    ;Consumptiongrowthremainedrobust.Retailsalesgrowthacceleratedto18.1% ;V/yin19,ecemberinnominalterms(from17.3(J/0inNovember)..8%il..andto13r/Ynrea ;termsf12.8%prior).Theurbanhouseholdsurveyfounddisposableincomesup9.1%Y/r ;inrealtermsin0-4,comparedtoZ1%y/yin.Householdspendingalsoacceleratedto ;Z6%y/yinQ,from6.2%in03and5_5%in02seeChart2).Ifaccurate,thesenum

    ;bersindicatethatthenegativeeffc’.ctsofinflationarefadingandthat(21hina’sconsumers

    ;arecontinuingtospend.Onemultinationa1clientwespoketorecently,whosellsclothes ;acrossChina,alsosawnosnsofaslowdown.Btitotherdomesticretailers,bothhi

    ;andlow-end.reportedanobviousslowdowninsalesinO,_4-2011whichtheyfeared ;wouldcontinueintoO1-2012.

    ;Upwardwagepressurelookssettocontinuejn2012,thoughnottothesameextent ;asin2011.Wleexpectmanufacturingwagestoriseanother1O%onaveragethisyear; ;this.alongwithourforecastof2’%CPIinflationfor2012,willmeanhouseholdsshould

    ;continuetobenefitfromrea1Jincomegrowth.

    ;Chart1:AgoodQ4,buttherearetoughtimesahead

    ;GDPgrowth,Y/Yandq/qSAAR.%

    ;25%

    ;2O%

    ;Omdally,China’sGDPgrew15%

    ;by8.9%y/yinQ3.betterthanthe

    ;marketconsensusof8.7%.Accord-.

    ;ingtoourestimatedq/qseasonally

    ;adjustedannualisedratefSAAR),

    ;growthacceleratedto9_3%in0-4

    ;from8.5%in03.asweshowin

    ;Chart1.Vvecannotsquarethis

    ;withtheocialq/qgrowthhum

    ;bers:2.0%inQ4,downfrom2.3%

    ;in0.2and03.

    ;Beneaththisstrongfigure,an

    ;CHIs

    ;1O%

    ;5%

    ;q/qSAAR%

    ;0%

    ;Mar05Mar-06Mar.07MaF.08Mar-09Mar-10Ma11Ma12

    ;Sources:CElC,StandardCharteredResearch

    ;Growthproxies

    ;0verall,thegrowthproxieswe

;tracktellthesamestoryastheocial

    ;GDPdata.However.formostofthe ;proxies,weonlyhavedatauntilNovem

    ;ber2011.

    ;Freighttraffic:Prettysolid

    ;1l1eadvantageoflookingatfreight ;trafficisthatthereislittlereasonto ;fakethedata.Thedisadvantageisthat. ;unlikeGDP,itisnotavalueadded

    ;measure.Theairfreightmarkethascol- ;lapsed.butitisavolatilebusiness.0ther ;freightsectorssuggestmuchmorestable ;growththroughNovember2011,as ;Chart4shows.Carriageofgoodson ;roadsisparticularlyimportant,and ;itgrewarobust20%y/yinOctober- ;November2011.

    ;Energyproduction:Softening

    ;abit

    ;Electricitygrowthissoft,asChart ;5shows,suggestingthatIPgrowthwill ;alsoweakeninthecomingmonths. ;Airtravel:Belowaveragebut

    ;steady

    ;Domesticairtravel,measuredin ;persontrips,isrunningataround10%y/ ;Yandhasevenstrengthenedabitinre

    ;centmonths.Chart6showsthevarying ;fatesoftheChinese,Asianandglobal ;economiesinthelastfewyears.Inter- ;nationalarrivalstChinacrateredduring ;theglobalfinancialcrisisanddipped ;sharplyinearl2011.Regiona1arriv

    ;als,fromHongKongforinstance,also ;weakenedmorethanlocaltravelduring ;thecrisisandhavebeenfairlysteadyin ;recentmonths.Localairtraveldidnot ;declineassharplyasinternationalorre

    ;gionaltravelin200809,andhasglided

    ;toabelow-averagebutsteadypath. ;Cementandsteel:Weakening,in ;Chart2:lnflationtaxfaIIs

    ;Urbandisposableincomeandconsumptionexpenditure.%Y/Y

    ;18%

;15%

    ;12%

    ;9%

    ;6%

    ;3%

    ;0%

    ;linewithFAI

    ;Proxiesforinfrastructureand ;propertyareweaker,reflectingthe ;slowdowninFAIgrowth.AsChart7 ;shows,crudesteelproductiongrowth ;hit0%y/yinNovember.thoughit ;seemstohavebouncedbackalittlein ;December.Cementproductiongrowth ;isweakeningtoo,andisrunningbelow ;the12%averagerateofthelastdecade. ;Andflnatty,thepropertysector ;Thecorrectionhasbegun.Resi

    ;dentialhousinginvestmenthita30

    ;month1owof10.8%v/vinDecember ;(19.6%y/yinQ),comparedto35.7% ;inthefirstthreequartersof2011.Floor ;spaceunderconstructionfe1125%V/Vin ;December(Chart8showsthe3month

    ;movingaverage,whichsoftensthede

    ;dine);thissuggeststhatinvestmentin ;thissectorhasmuchfurthertocontract. ;Chart3:Creditcontrolsbite

    ;FA/growth.nominalandreal,%Y/Y ;45%

    ;40%

    ;35%

    ;30%

    ;25%

    ;2O%

    ;15%

    ;1O%

    ;Mar-05Mar06Mar_07Mar-08Mar-09Ma1OMa11Mar05MaO6Ma07Mar-08Mar09Mar.10Mar-11

    ;Sources:CElC.StandardCharteredResearchSources:CElC

    ;Chart4:FreighttrafficsuggestsstillstronggrowthChart5 ;Railhighway,airandwaterfreighttransport,kmtonnes.%Y/Y ;StandardCharteredResearch

    ;Electricityproductionisweaker

    ;Electricityandindustrialproduction.%Y/Y ;70%3O

    ;5O%

    ;30%

    ;10%

    ;

    ;1O%

    ;25

    ;20

    ;15

    ;Highway1n

    ;JU

    ;Water

    ;Railway5

    ;Air0

    ;

    ;5

    ;

    ;30%10

    ;Jan0OJan.02Jan04Jan06Jan08Jan10Feb.98Feb.00Feb-02Feb-04Feb-O6Feb08Feb-10Feb-12

    ;Sources:CElC.StandardCharteredResearchSourcesCEtandardChart…ered…Re—sear(,h ;lJS

    ;

    ;Salesvolumesdeclinedsubstan

    ;tiallvinO4.RLesidentialfloorspacesold ;fell8.4%y/yinDecemberffollowing ;averagegrowthof12.9%inQ3-2o11). ;Completedresidentialfloorspaceisstill ;growing,up9.3%yl/yinDecember.is ;isresultinginrisingapartmentinvento

    ;ries.ExpectationsofpricerisesinTier ;13citiesappeartobereversing,and ;developershavebeencuttingpricessince ;Octoberinanattempttoshiftinventory. ;Priceswilllikelycontinuetofal1.In ;02-2012,weexpectthecentraIgovern

    ;menttobeginsignallingapolicyshift ;tostabilisethesector.AttheMarch ;NationalPeople’sCongressmeetings,

    ;localofficialswillbelobbyingaggres

    ;sivelyforrelie~Oncepriceshavecome ;down,weexpectBeOingtostartgradu

    ;allyeasingsomeofthepropertymarket

    ;restrictionsimposedinthepastyearin ;ordertoencouragefirst-timebuyersinto ;ChaSlowerbutstitllntheair

    ;60%

    ;50%

    ;40%

    ;3O%

    ;20%

    ;1O%

    ;0%

    ;

    ;10%

    ;

    ;20%

    ;

    ;30%

    ;themarket.TOissector,though,remains ;thebiggestrisktoChina’seconomy.

    ;Poticvouttook

    ;Ifanything,today’sdataisanother.-

    ;‘?

    ;reasonnottoexpectaquickmoveto ;furtherloosening.TOeeconomyisslow- ;ing,butnotdramaticallysofar.

    ;TOefailureoftheexpectedrequired ;reserveratio(RRR1cuttomaterialise ;beforetheLunarNewYearisadisap

    ;pointment(therearefourmoreworking ;daystogobeforethemarketsclose).Toe ;People’sBankofChinafPBoC)instead

    ;engagedinanopenreverserepotransac

    ;tionwithbankstodayinordertoprovide ;1iquiditybeforetheholidayandthere

    ;arereportsofatleasttwoother1iquidicv_ ;providingactionsbetweenthecentral ;bankand1argelocalbanks.Liquidityis ;tight,butthePBoChasbeenactivelr ;managingliquidity,andwedonotex- ;Airtravel,passengertrips.%Y/Y ;Regional

    ;pectittogettighter.Depositsshould ;comebackintothebanksaftertheholi

    ;day,whichwillboostinterbankliquidity, ;sowemighthavetowaitawhileforthe

;nextRRRcut.

    ;‘meinvestmentslowdown,though,

    ;willbeadragonIPgrowthinOj

    ;2012.Exportscontinuetoweaken(they ;areonlygrowingby4%Y/yinrealterms ;now;andthehousingmarketwillCOl’-

    ;rectmore.Wl0okformore’interesting

    ;times’ahead—and6%q/qSAARGDP

    ;growth.Underthesecircumstances, ;moremonetarylooseningwi11come,but ;onlyslowly.WstilllookforO1tobe ;thebottomofgrowthmomentum——but

    ;thesenumbers,thoughstrong,raisethe ;possibilitythatthewillpushinto02ascomingslowdown

    ;wel1.@

    ;fAuthors:EconomistsfrOm

    ;StandardCharteredBank)

    ;Chart7:Lesssteelandcementgrowth ;5O%

    ;40%

    ;30%

    ;20%

    ;1O%

    ;O%

    ;

    ;10%

    ;Production.%Y/Y

    ;

    ;20%

    ;Jan06Jan07Jan08Jan09Jan10Jan11Jan99Jan01Jan03Jan05Jan07Jan09Jan11

    ;Sources:CElC.StandardCharteredResearch ;(0}t8bwestmentandconstructionslowing ;Residentialinvestmentandfloorspaceunderconstruction.%Y/Y,aroma

    ;6O%

    ;40%

    ;20%

    ;0%

    ;.

    ;20%c0nstructi0n

    ;Sources:CEIC.StandardCbarteredResearch ;Chart9:Salesfallsupplyincreases ;Residentialfloorspacesalesandcompleted,%Y/Y,3mma

    ;10O%

;80%

    ;6O%

    ;40%

    ;20%

    ;O%

    ;

    ;20%

    ;

    ;40%

    ;Jan05Jan06Jan07Jan08Jan-09Jan-10Jan11JanO5Jan-O6Jan07Jan

    08JanO9Jan10Jan11 ;s

    ;Sources:CElC.StandardCharteredResearchSources:CEIC.StandardCharteredResearch

    ;

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