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China is Slowing – But How Much?
by 趙永祥 2014-03-08 20:07:02, 回應(0), 人氣(827)


China is Slowing – But How Much?








China’s economy likely started 2014 on a weak note, according to early data releases and economists’ forecasts, but the extent of the slowdown is hard to gauge. China combines some data for January and February, to avoid distortions around the lunar New Year holiday, meaning the results aren’t available till mid-March. With limited information to work with, economists are withholding judgement until those figures come out.

“The first two months of each year are inevitably distorted by the impact and timing of Chinese New Year,” wrote a team of economists from UBS in a research report earlier this week. Still, UBS remains relatively optimistic. “Despite market concerns, we expect a weaker but still resilient economic picture to emerge,” they said.








Purchasing managers’ indexes suggest the manufacturing sector slowed down at the beginning of the year. The government’s official PMI slipped to 50.2 in February, from 50.5 the month before, marginally above the dividing line that separates expansion from contraction. A competing index issued by HSBC and Markit fell to 48.5 from 49.5, well into contractionary territory.


But most of China’s factories shut down for a week or more while workers go home over the holiday, making the data hard to interpret. New export orders also fell steeply according to the official PMI, with the relevant subindex dropping to 46.5, but that could be partly due to the exceptionally harsh winter in the U.S., which clobbered economic activity in one of China’s most important markets.


Stripping these things out is hard. Economists think February’s exports may look weak, partly because companies pushed a lot of shipments forward to get them done before the holiday. The median forecast of 13 economists surveyed by The Wall Street Journal is for 5% on-year growth in February. January’s exports grew by an unexpectedly strong 10.6% year-over-year.

China’s trade data are due out at around 0200 GMT on Saturday.

Industrial production, a key indicator which foreshadows gross domestic product growth, likely grew 9.5% year-over-year in the January and February, which are rolled together by the Statistics Bureau. December’s figure was 9.7%.


Fixed-asset investment likely rose 19.3% year-over-year in the same two month period, a modest slowdown from 19.6% growth in last year as a whole, as local governments slowly wind down their recent infrastructure binge.


“Tighter credit conditions and government efforts to contain local government debt affected availability and affordability of funding for investment,” wrote Shuang Ding and Minggao Shen in another research note.

Industrial production and FAI numbers are due to be released at 0530 GMT on March 13.

China’s currency, the yuan or renminbi, fell unexpectedly in 

February, with one U.S. dollar buying 6.12 yuan at the end 

of the month, compared with 6.10 at the beginning. By the standards of China’s tightly managed exchange rate, that counts as a big move.

Analysts said the central bank engineered the drop deliberately to undermine perceptions that the yuan is a one-way bet, bound to keep on rising. A weaker currency would benefit China’s exporters, but only if sustained over the long term.


Financing conditions seem to have become easier, with the benchmark 7-day repo rate falling throughout February and hitting 2.48% on March 6, the lowest since 2012. While only banks can borrow at that interest rate, they tend to pass cheap financing on to their customers. That seems at odds with the government’s goal of curbing runway lending growth.

“The current situation is confusing,” said Louis Kuijs, an economist at RBS. “Interbank rates have fallen to levels that do not seem consistent with the firmer monetary stance that policymakers said they wanted to pursue.”

Mr. Kuijs thinks the sudden drop in interest rates is a side-effect of the central bank’s moves to weaken the yuan, not a deliberate move to loosen monetary policy.

But it does suggest that slowing credit growth is not the top priority for policy makers. Banks likely made a net 740 billion yuan of local currency loans in February, according to the Journal’s survey. That would be a decline from 1.32 trillion yuan in January, traditionally a strong month for lending, but higher than 620 billion yuan in February last year. The data is expected around the middle of March.

Inflation remains the dog that isn’t barking. A mild winter has helped to keep food prices low, with the agricultural wholesale price index down 1.1%  from a year earlier.

The consumer price index likely rose an unthreatening 2% year-over-year in February, according to the Journal’s poll, down from 2.5% in January. The premier set a target of keeping price rises to no more than 3.5%, a repeat of last year’s goal. China’s inflation data will be released at 0130 GMT on Sunday.


http://blogs.wsj.com/chinarealtime/2014/03/07/early-look-china-is-slowing-but-how-much/tab/print/


Dr. Chao