China: An Old-Fashioned Recovery, Headwinds Ahead Li-Gang Liu Chief Economist, Greater China MAR 2013 1
Industrial production rebounded, led by the heavy industry sector China - Industrial Production China - Electricity Consumption (y/y) (y/y) 26 30 24 25 22 20 20 15 18 10 16 5 14 0 12 10 -5 8 -10 Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb 10 10 10 10 11 11 11 11 12 12 12 12 13 11 11 11 11 11 11 12 12 12 12 12 12 13 Light Industry Heavy Industry Overall Light Industry Heavy Industry China - Industrial Profits China - Industrial Production Growth vs Ferrous (y/y) 25 Metal Smelting & Pressing (y/y) 25 20 20 15 15 10 5 10 0 5 -5 0 -10 Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 10 10 11 11 11 11 11 11 12 12 12 12 12 12 13 12 12 12 12 12 12 12 12 12 12 12 12 Headline Industrial Production Smelting & Pressing of Ferrous Metals
Fiscal policy implementation had sped up after September 2012; newly started projects surged in Q4. China - Government Expenditure China - Newly Started Projects Target 2012 (y/y) 70 60 100 Government Expenditure, % 50 implemented 80 40 Target (45 degree line) 30 60 20 40 10 0 20 -10 0 -20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb 12 12 12 12 12 12 12 12 12 12 12 12 10 10 10 10 11 11 11 11 12 12 12 12 13
Meanwhile, property market warmed up in H2 2012 China - Property Price Index China - Residential Property Investment vs GDP (y/y) (y/y, ytd) 18 45 14 16 40 14 35 12 12 30 10 25 8 10 6 20 4 15 2 8 10 0 5 -2 -4 0 6 2005 2006 2007 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 Official Property Price Index ANZ Property Price Index Residential Property Investment GDP (RHS) China - 70 City New Residential Property Price China - 70 City New Residential Property Price (number of cities y/y change) (number of cities m/m change) 70 70 60 60 50 50 Number of Cities Number of Cities 40 40 30 30 20 20 10 10 0 0 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan 11 11 11 11 11 11 12 12 12 12 12 12 13 11 11 11 11 11 11 12 12 12 12 12 12 13 Decrease No Change Increase Decrease No Change Increase
But this is an old-fashioned recovery, driven by investment. No visible change in China’s economic structure China - Contribution to GDP Growth China - Provincial Growth and Investment Targets in 2013 (%) 20 35 30 15 25 20 10 15 10 5 5 0 0 Tibet Guizhou Shaanxi Jilin Gansu Qinghai Yunnan Chongqing Tianjin InnerMongolia Ningxia Heilongjiang Fujian Sichuan Guangxi Xinjiang Henan Jiangsu Hubei Hunan Jiangxi Hainan Shanxi Anhui Shandong Liaoning Hebei Zhejiang Guangdong Beijing Shanghai -5 01 02 03 04 05 06 07 08 09 10 11 12 Consumption Investment Net Exports GDP, y/y 2013 GDP Growth Target 2013 Investment Growth Target China - Incremental Capital Output Ratio Incremental Capital Output Ratio 7 Avg. Investment 6 GDP Share of GDP Period Growth (%) ICOR 5 4 1981-1990 9.3 35.2 3.8 3 China 1991-2000 10.5 37.8 3.6 2 2001-2011 10.6 43.4 4.1 1 Japan 1960-70 10.4 26.1 2.5 0 Korea 1981-91 9.7 30.4 3.1 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 ICOR, 5 year moving average
Inflation will return as a major threat China - CPI Inflation China - PPI Inflation 8 2 10 2 8 6 5 1 4 1 3 2 0 0 -3 0 0 -5 -1 -2 -8 -4 -1 -10 -2 Aug Nov Feb May Aug Nov Feb May Aug Nov Feb Aug Nov Feb May Aug Nov Feb May Aug Nov Feb 10 10 11 11 11 11 12 12 12 12 13 10 10 11 11 11 11 12 12 12 12 13 m/m (RHS) y/y m/m (RHS) y/y China - Inflation vs CRY Index Index (y/y) 15 60 China Hog Price Cycle 190 40 2011 - current 10 170 2008 to 2011 2005 to 2007 20 150 2002 to 2004 5 0 130 0 110 -20 90 -5 -40 70 -10 -60 50 2005 2006 2007 2008 2009 2010 2011 2012 0 6 12 18 24 30 36 CPI PPI CRY Index (RHS) months
Risk of asset bubble will be rekindled on the back of re-affirmed urbanization drive China - Property Prices China - First Tier City New Residential Property (y/y) Prices (y/y) 8 8 7 6 6 5 4 4 3 2 2 1 0 0 -1 -2 -2 *average prices -3 -4 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan 11 11 11 11 11 11 12 12 12 12 12 12 13 11 11 11 11 11 11 12 12 12 12 12 12 13 39 cities with property curbs 31 cities without property curbs Beijing Shanghai Guangzhou Shenzhen
Monetary policy in 2013: A tightening bias has set in? PBOC resumed repos to drain liquidity from the Food prices hit record high, raising inflation open market concerns China - PBoC Weekly Open Market Operations China Food Price Index (RMB bn) 1,000 230 Liquidity Injection 800 220 600 210 400 200 200 0 190 -200 180 -400 170 -600 -800 160 Liquidity Withdrawal -1,000 150 27 17 08 29 19 10 31 21 11 04 140 Aug Sep Oct Oct Nov Dec Dec Jan Feb Mar Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan CB Bill Matured Repo Matured Reverse Repo 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 CB Bill Repo Rev. Repo Matured Net Market rates much more stable this year, Capital inflows rebounded in Q4 2012 and are expect suggesting relaxed market liquidity to surge in Q1, prompting repos operations China - 7-day Repo Rate China - Monthly Change of Financial Institutions 10 One week before Chinese FX Position (RMB bn) 800 New Year 9 700 8 600 7 500 6 400 5 300 200 4 100 3 0 2 -100 1 -200 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan Aug Nov Feb May Aug Nov Feb May Aug Nov Feb 09 09 09 10 10 10 11 11 11 12 12 12 13 10 10 11 11 11 11 12 12 12 12 13
Fear of hard landing has diminished and an 8% growth can be obtained; but inflation will rebound and the renewed risk of asset bubble will return China-GDP(y/y) • We hold a cautiously optimistic view on 13 forecasts China’s economic outlook over the next 12 year. The economy should see a continuous and modest upturn in 2013, 11 with an annual GDP growth rate at 8.1% 10 y/y for the whole year. 9 8 7 • Inflation remained tamed in Q4 2012, Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 but will started to rise in Q1 2013. China - CPI (y/y) Inflation is expected to reach to 4% y/y 7 forecasts in late Q2 or early Q3 2013. We forecast 6 China’s inflation will increase by around 5 3.5% to 4% in 2013. 4 3 2 Government 1 Target 0 -1 -2 -3 Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep 09 09 10 10 11 11 12 12 13 13
After the enlargement of the trading band, CNY’s one -way bet is now difficult to realize, but two-way fluctuation is here to stay. China - CNY Basket USD/CNY 6.70 6.45 6.40 6.60 6.35 6.50 6.30 6.40 6.25 6.30 6.20 6.20 Jan Mar May Jul Sep Nov Jan Mar Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar 12 12 12 12 12 12 13 13 11 11 11 11 11 11 12 12 12 12 12 12 13 13 USD/CNY Spot Trading Band Fixing ANZ Basket Track CNY Spot CNY Exchange Rate China - CNY and CNH Rates (Index: 1 Jan 2012 = 100) 6.38 500 130 6.36 125 400 CNY Appreciation 6.34 120 300 6.32 115 200 6.30 110 6.28 100 105 6.26 0 100 6.24 -100 6.22 95 -200 6.20 90 6.18 -300 Jan Mar May Jul Sep Nov Jan Mar Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 12 12 12 12 12 12 13 13 Spread (pips, RHS) USD/CNY USD/CNH CNY/EUR CNY/JPY CNY/AUD CNY/USD Source: Bloomberg, ANZ 10 10
China: Medium-term Outlook 11
Political transition is unlikely to change economic policy: A Case study of the 12 th five-year plan Phase 1: 2 years (March 2008 – February 2010) • The State Council organised an interim evaluation of the 11th FYP through all ministries, provincial governments and independent research institutes including the World Bank, Asian Development Bank, and universities. A report was submitted to NPC Standing Committee. • The State Council arranged an initial research of 39 topics of 8 areas in the form of research projects. The research report was submitted to the Party’s Politburo Standing Committee which determined the directions and issued a “circular” to relevant units (February 2010). Phase 2: 8 months (February 2010 – October 2010) • The State Council Vice-Premier Li Keqiang led drafting of the proposal with all nine members of Politburo Standing Committee involved. Each of them was responsible for an area of “investigation and research”. All ministries and provincial governments draft their own plans concurrently. • At the 5th Central Committee meeting held in October 2010, Premier Wen presented the final proposal for consideration, and then announced the approved proposal. Phase 3: 5 months (October 2010 – March 2011) • The State Council prepared the FYP Outline for further deliberation and public consultation and presented the Outline to the Politburo. It was also vetted and approved by NPC in March 2011.
Recommend
More recommend
