Towards Financial Freedom
China: Encouraging Economic Data
- The Sep economic data released in the past few days rise hope that the Chinese economy may have finally bottomed in 3q12. The M2 growth accelerated to 14.8% yoy in Sep, the fastest since Jul 2011, showing an uptrend of money supply which should help support economic growth in the final quarter. The improved liquidity conditions signal that the required reserve ratio (RRR) for major banks may again remain unchanged at 20% in Oct, along with no additional interest rate cut in the rest of the year. In targeting market liquidity, the PBOC seems to prefer reverse repos lately for fear of refueling the property market.
- It is also encouraging to see exports growing close to 10% yoy, reaching a historical monthly high of US$186.3 bn in Sep after two consecutive months of disappointing trade in Jul-Aug. Still, much of the improvement in Sep exports was attributable to higher demand from ASEAN and other key Asian economies such as Hong Kong and Taiwan. Exports to the US and Japan saw modest growth while exports to the EU continued to contract. As it is unlikely that exports in the coming months would resume their growth of 20-30% seen in the past due to continued weak demand in the advanced economies, we maintain our forecast for China's exports to grow about 8% this year. This is lower than the government's trade growth target of 10%.
- Meanwhile, the Sep's consumer price inflation (+1.9% yoy) was slightly below our forecast due to further easing of food inflation (particularly pork prices). But we believe the CPI will edge higher in 4q12 on lower base while rises in domestic demand push up domestic prices. Higher world grain prices such as soybean and corn as a result of the US drought could also possibly impact feed prices and overall food prices. We continue to expect inflation to average 2.8% for the whole of 2012, with the CPI climbing to 2.5% in 4q12 from 1.9% in 3q12.
- For now, the forecasts are that the Chinese economy may grow by 7.4% yoy in 3q when it publishes the GDP data this Thur. The outlook for the immediate 4q12 is that the economy will likely improve due to the government's infrastructure investment initiatives to stimulate domestic demand (particularly railway investment). As the economy picks up, there would also be less argument for the central government to relax its property control policies.
Source: OSK
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