150611 china signs of stabilisation

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Group Economics Emerging Markets

China Watch

Arjen van Dijkhuizen +31 20 628 8052

Signs of stabilisation

11 June 2015 

Although the May economic data present a rather mixed bag, they show more signs that the economy is stabilising, benefiting from previous easing measures. We expect some improvement in growth momentum in the next half year.

Our expectation is based on the fact that the authorities remain committed to add measured monetary and fiscal stimulus and on the assumption of higher growth in advanced economies strengthening external demand.

The plan to swap high-cost local government debt to lower-yielding bonds will reduce debt service costs.

Still, overall debt levels have risen further to an estimated 280% of GDP, representing the key long-term downside risk.

May data point to stabilisation

… as did the headline PMIs

After weak April data suggested that the economy started Q2

PMI data published in early June already pointed to some

on a weak note, the May data show more signs that the

stabilisation, although not all data were that bright. The

economy is stabilising, benefiting from previous easing

Manufacturing PMI improved a bit, to 49.2 (April: 48.9), but

measures. Admittedly, the May data present a rather mixed

remained below the neutral 50 mark for the third month in a

bag. The latest PMIs, housing sales, industrial production and

row. The output subindex fell below 50 for the first time since

retail sales show a picture of stabilisation or even improve-

December 2014, while new export orders contracted at the

ment, while trade data, headline inflation and fixed investment

steepest rate since June 2013. Meanwhile, the Services PMI

point to ongoing weakness. We expect some improvement in

tells a brighter story, rising to an eight-month high of 53.5 in

growth momentum in the next half year, based on the fact that

May (April: 52.9). New business showed the biggest rate of

the authorities remain committed to add measured monetary

expansion in three years. The composite output index

and fiscal stimulus and on the assumption of strengthening

remained quite stable at 51.2 (April: 51.3).

external demand from advanced economies. Still, imports remain in contraction mode … Industrial production and retail sales improve a bit …

In the first five months of 2015, total Chinese trade fell by 8%

After having fallen to an historic low in March, industrial

compared to the same period of 2014, falling clearly short of

production growth rose somewhat again in May, reaching

the government’s 2015 trade growth target of +6%. Annual

6.1% yoy (April: 5.9%), slightly better than expected. Retail

import growth remained negative in May, for seven months in

sales also did slightly better than market expectations, rising

a row now, falling by -17.6% yoy (April -16.2%; consensus:

marginally to 10.1% yoy (April: 10%). By contrast, fixed

-10%). Although the import contraction obviously relates to the

investment continued its downward trend, reaching a fresh low

slowdown in the manufacturing and industrial sectors, they

of 11.4% yoy in May (April: 12%), below market expectations.

also reflect the drop in commodity prices and the relative

Bloomberg’s monthly GDP estimate rose to 6.55% yoy (April:

strength of the yuan. China’s import price index has fallen to

6.4%).

89.5 in March, the lowest level since October 2009.

Manufacturing and Services PMIs still divergent

Exports to Japan and EU particularly weak

% yoy

% yoy, 3 months moving averages

65

60

60

40

55

20

50

0 45

-20

40

-40

35 08

09

10

11

Manufacturing PMI Source: Thomson Reuters Datastream

12

13 Services PMI

14

15

08

09

10

Total exports

11

12

Exports to Japan

Source: Thomson Reuters Datastream

13

14 Exports to EU

15


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