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