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FOLLOW USCONTACT US A CEIC Insights Report China Economy in a Snapshot Q1 2020 2 Executive Summary Any redistribution of this information is strictly prohibited. Copyright 2020 CEIC, all rights reserved. A CEIC Insights Report China Economy in a Snapshot, Q1 2020 Source: A CEIC Insights Report 3 Economic Outlook Chinas real GDP growth rate was 6% y/y in Q4 2019, the same as in Q3 and in line with expectations. Consumption stayed robust, despite high consumer inflation. The growth of gross capital formation accelerated, propelled by manufacturing investment and real estate investment. Although the trade surplus in goods decreased slightly, reaching 3.2% of GDP in Q4 2019, the external sector still performed well. While the easing trade tension between China and the US is likely to benefit the economy and to shore up confidence, the outbreak of the 2019 novel coronavirus poses a big threat. Although there is not enough information to assess the full impact on China, it is clear the virus is hurting consumption and employment. The market expectations are that Chinas economic growth might slow down to 0%-2.4% y/y in Q1 2020. Against this background, the macroeconomic policies are likely to be adjusted in order to buffer the negative shocks from the 2019 novel coronavirus in Q1 2020. In terms of monetary policy, despite the high consumer price index (CPI), the Peoples Bank of China (PBoC) might cut the interest to support the flagging economy. Also, the fiscal deficit ratio is likely to climb up and go above the threshold of 3% of GDP. Key Highlights EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 The CEIC smoothed leading indicator for the Chinese economy slipped further to 87.82 points at the end of Q4 2019 from 90.39 at the end of Q3, suggesting a continuous slowdown trend due to internal and external challenges. The composite purchasing managers index (PMI), however, signals a better outlook for production. The composite PMI published by the National Bureau of Statistics rose to 53.5 points at the end of Q4 2019 from 53.1 at the end of Q3. Moreover, the Caixin composite PMI registered a notable gain to 52.6 points at the end of Q4 from 51.9 at the end of Q3, driven by a significant rise in services and by a slight increase in manufacturing. Business confidence rose to 100.4 points in Q4 2019 from 99.6 in Q3, passing the 100-point threshold and thus entering expansion territory for the first time since Q1. Consumer confidence also increased to 124.5 points in Q4 2019 from 123.6 in Q3, remaining in the expansion area. The improvements in PMI, business and consumer confidence are partly due to the easing trade tensions and the governments counter-cyclical measures to support the small and medium enterprises (SMEs). A CEIC Insights Report 4 While the easing trade tension between China and the US is likely to benefit the economy and to shore up confidence, the outbreak of the 2019 novel coronavirus poses a big threat. Although Beijing has taken actions to control the spread of the virus, the number of patients is increasing at a rapid speed which makes it uncertain when the virus could be put under control. While there is not enough information to assess its full impact on China, this outbreak is very likely to hurt consumption and employment significantly in Q1 2020. The 2019 novel coronavirus could drag down the growth rate of retail sales by at least 5 pp in Q1 2020, if the spread is not put under control before April, according to Ping An Securities estimation published on January 29, 2020. Moreover, the 31-city survey unemployment rate is likely to jump up to a level higher than 5.3% in Q1 2020. Last but not least, market expectations are that Chinas economy might slow down to 4.5%-5% y/y in Q1 2020. Against this background, Beijing is likely to fine-tune its macroeconomic policies in order to buffer the negative shocks from the 2019 novel coronavirus in Q1 2020. First, the monetary policys focus could shift towards growth rather than price stability. In other words, despite the high CPI, the PBoC would probably introduce further interest rate cuts to lower the funding cost for enterprises and households. Moreover, the PBoC might encourage banks to lend more credit to enterprises. Second, the fiscal deficit ratio is likely to go above the threshold of 3% of GDP. The government already spent RMB 27.3bn (USD 3.9bn) to control the spread of 2019 novel coronavirus in January 2020. The spending on the virus might increase in the following months, hence the fiscal spending on battling the outbreak could push up the fiscal deficit ratio. According to the IMFs forecast, Chinas real GDP growth will be around 6% y/y in 2020, which reflects the positive outlook for Chinas economy in 2020. However, the outbreak of the 2019 novel coronavirus has not been included into the IMFs forecast model, hence this projection might be adjusted in the next release. The IMF forecast shows the fiscal deficit will be 6.17% of GDP in 2020 and will remain at this level for four more years to come. In addition, the current account balance would settle at a more stable level of 0.91% of GDP in 2020, according to the IMFs projections. The downside risks to the outlook stem from the rising geopolitical tensions, intensifying social unrest and further worsening of the relations between the US and China, according to the IMFs World Economic Outlook published in January 2020. CEIC Leading Indicator Source: CEIC Data EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 A CEIC Insights Report 5 China PM : Caixin EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 Source: CEIC Data Quarterly Business Confidence Index: Manufacturing Quarterly Business Confidence in Manufacturing (y/y%) Source: CEIC Data Source: CEIC Data China PMI : NBS Source: CEIC Data A CEIC Insights Report 6 Chinas real GDP growth rate was 6% y/y in Q4 2019, the same as in Q3 and in line with expectations. In 2019, Chinas annual real GDP growth rate was 6.1% y/y, within the target range of 6%-6.5% y/y. The industrial production index (IPI) rose by 5.9% y/y in Q4 2019, accelerating from 5% in Q3. The headline inflation rose to 4.5% y/y in December 2019, higher than the 3% y/y target level set by PBoC. Due to the soaring food prices, especially those of pork, the average headline CPI inflation was 4.3% y/y in Q4 2019, up from 2.9% y/y in Q2. Producer prices dropped further and recorded a deflation of 1.2% y/y in Q4 2019. However, monthly data revealed decreasing deflation pressures. The producer prices dropped by 0.5% y/y in December 2019, less than the 1.6% y/y and 1.4% y/y decrease in October and November, respectively. The trade surplus in goods narrowed to USD 128.2bn in Q4, a 6.2% y/y decrease with imports declining by 2.8% y/y and exports dropping at a moderate pace of 1% y/y. Summary Consumer Confidence Index EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 Source: CEIC Data Quarterly Consumer Confidence Index Source: CEIC Data A CEIC Insights Report 7 China Economy: Statistics at a Glance Source: CEIC Data EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 Unit 02.01.2020 01.01.2020 12.01.2019 11.01.2019 10.01.2019 09.01.2019 Real GDP: YoY % 6.0 6.0 Industrial Production Index: YoY % 6.9 6.2 4.7 5.8 Consumer Price Index: YoY % 5.2 5.4 4.5 4.5 3.8 3.0 Producer Price Index: YoY % -0.4 0.1 -0.5 -1.4 -1.6 -1.2 Electricity Generation GWh 654,420 588,980 571,420 590,840 Total Imports: YoY: sa % 11.8 4.0 -10.2 -7.9 Total Exports: YoY: sa % 6.3 -0.7 -1.3 1.2 Unemployment Rate: Registered % 3.6 3.6 Unemployment Rate: Urban Survey % 6.2 5.3 5.2 5.1 5.1 5.2 Retail Sales: YoY % 8.0 8.0 7.2 7.8 Consumer Confidence: YoY % Point 3.6 2.5 5.2 5.6 Real Estate Investment: YTD: YoY % -16.3 -16.3 9.9 10.2 10.3 10.5 Fixed Assets Investment: YTD: YoY % -24.5 -24.5 5.4 5.2 5.2 5.4 Foreign Direct Investment USD mn 57,100 17,655 Current Account Balance USD mn 40,100 49,189 M2: YoY % 8.8 8.4 8.7 8.2 8.4 8.4 Policy Rate % pa 2.3 2.3 2.3 2.3 2.3 2.3 Interbank Treasury Bond Yield: 10 Years % pa 2.7 3.1 3.2 3.2 3.3 3.2 Non-Performing Loans Ratio % 1.9 1.9 A CEIC Insights Report 8 IMF Forecast Real GDP Growth, % y/y IMF Forecast: BPM6: Current Account: % of GDP: EMDE: Emerging and Developing Asia: China Source: CEIC Data EXECUTIVE SUMMARY China Economy in a Snapshot, Q1 2020 IMF Forecast: General Government Structural Balance: % of GDP: EMDE: Emerging and Developing Asia: China 9 Real Sector Any redistribution of this information is strictly prohibited. Copyright 2020 CEIC, all rights reserved. A CEIC Insights Report China Economy in a Snapshot, Q1 2020 A CEIC Insights Report Real Sector 10 The Chinese economic growth stayed at 6% y/y in Q4 2019, the same rate as in Q3 and in line with expectations. Such smooth growth is a consequence of the easing trade tensions between China and the US, stronger external demand in the semiconductor industry and the governments counter- cyclical policies. The final consumption expenditure remained resilient, and its contribution to the real GDP growth remained at 3.5% y/y in Q4 2019, the same as in Q3. The contribution of gross capital formation to real GDP growth increased to 2.7% y/y in Q4 from 1.6% y/y in Q3, as a result of stronger manufacturing investment and resilient investment in real estate. The contribution of net exports of goods and services dropped by 0.1% y/y in Q4, compared to a 0.9% y/y rise in Q3, which is partly due to the significant growth in imports from the US. In Q4 2019, the nominal GDP growth rate decelerated slightly to 7.4% y/y from 7.6% y/y in Q3, dragged down by the continuously dropping PPI. The detailed data showed different performances of the three industries. The nominal GDP growth in the primary industry increased to 10.1% y/y in Q4 2019 from 8.6% y/y in Q3, due to the rising food prices. In the secondary industry, the nominal GDP growth stayed at 5% y/y in Q4 2019, the same as in Q3. On the other hand, the nominal GDP growth in the tertiary industry dropped by 0.5 pp from Q3 to 8.8% y/y in Q4 2019.This deceleration is partly due to the slowing growth in the real estate, the transport & storage and the financial intermediation sectors of the tertiary industry. Based on the PMI survey, in Q4 2019, business activities gave the same signals as in the previous quarter. The non-manufacturing sector remained in expansion, but at a slower pace. The manufacturing sector, on the other hand, continued to contract, but with marginal improvements. The underlying segments of manufacturing PMI indicators revealed continuous pressures in employment, external demand and inventory, albeit with marginal improvements. In Q4 2019, the real growth rate of industrial production accelerated to 5.9% y/y, rising by 0.9 pp from the previous quarter. Nominal retail sales growth was resilient and lingered around 7.8 %y/y in Q4 2019, roughly the same as in Q3. Based on online retail sales data, the retail sales growth increased significantly to 23.4% y/y in Q4 2019, rising by 5.66 pp from the previous quarter. This notable growth is mainly due to Alibabas mega shopping event, the singles day on November 11. Meanwhile, the retail sales growth of large enterprises rose modestly by 0.91 pp from Q3 2019. The retail sales of automobiles increased by 1% y/y in Q4 2019, compared to a drop by 2% y/y in Q3. The other consumer goods retail sales registered a marginal increase of 0.7% y/y in Q4 from 0.6% y/y in Q3. In Q4 2019, the nominal disposable income continued to increase, rising by 9.2% y/y, a 0.1 pp climb compared to Q3. The consumption expenditure growth was 9.4% y/y, dropping by 0.5 pp from its previous quarter rate. In Q4 2019, the average consumer confidence index stood at 124.5 points, up by 0.9 points from 123.6 in Q3, reflecting the recovery of confidence due to the easing trade tensions between China and the US and the positive expectations on the inflation. REAL SECTOR China Economy in a Snapshot, Q1 2020 Source: A CEIC Insights Report 11 CEIC Data REAL SECTOR China Economy in a Snapshot, Q1 2020 Real GDP Growth and Nominal GDP FAI growth rate stayed at 5.4% y/y in Q4 2019, the same as in Q3. By sectors, real estate FAI growth rate slowed to 9.1% y/y, a 1 pp drop compared to Q3, reflecting the policy shift away from stimulating real estate to buffering the downward pressures on the economy. The growth rate of infrastructure FAI was 3.8% y/y in Q4 2019, dropping by 0.7 pp from the previous quarter. This growth deceleration is not consistent with the active policy of the central government, which implies that local governments are having certain difficulties executing this policy. Moreover, the room for active fiscal policy is likely to be limited by the aim of the government to achieve financial stability by balancing between control over local government debt and active fiscal spending on infrastructure. The growth of FAI in manufacturing increased to 3.1% y/y in Q4, up by 0.6 pp from Q3. At the same time, the monthly data is worth noting, because it showed a notable acceleration in December due to the easing trade tensions between China and the US. In terms of source of investment, private FAI growth rate remained at 4.7% y/y in Q4 2019, the same as in Q3 and higher than expected, which reflected the governments efforts to promote business confidence by lower funding cost for small and medium sized enterprises. On the other hand, state FAI growth rate decelerated to 6.8% y/y in Q4 2019, down by 0.5 pp from Q3. Source: A CEIC Insights Report 12 Industrys Nominal Growth Rate CEIC Data Contribution to Real GDP Growth (based on GDP by expenditure) REAL SECTOR China Economy in a Snapshot, Q1 2020 Share to GDP(based on GDP by expenditure) Source: A CEIC Insights Report 13 Quarterly Industrial Production Real Growth CEIC Data REAL SECTOR China Economy in a Snapshot, Q1 2020 Sectors Nominal Growth Rate, % 12.01.2019 09.01.2019 06.01.2019 03.01.2019 12.01.2018 09.01.2018 Nominal GDP 7.4 7.6 8.3 7.9 9.9 10.2 Manufacturing 4.7 3.8 5.8 6.6 7.6 9.7 Primary Industry 10.1 8.6 11.0 2.3 8.5 -0.2 Mining 5.0 6.6 8.8 4.2 9.2 11.2 Construction 6.2 8.3 9.4 10.6 14.2 10.9 Transport, Storage&Post 4.4 6.9 6.7 6.6 8.4 9.2 Wholesale&Retail Trade 8.4 7.4 8.1 7.2 8.7 9.8 Accommodation&Catering Trade 9.3 9.4 9.1 8.9 9.4 9.7 Financial Intermediation 9.2 9.0 9.6 8.9 9.0 9.1 Real Estate 6.4 9.1 8.1 7.5 11.0 13.2 Telecom,Software&IT 10.9 12.5 14.9 16.8 18.0 20.8 Leasing&Commercial Service 13.4 11.6 10.3 11.4 14.6 16.5 Other 9.8 10.3 9.5 9.6 12.1 12.9 Source: A CEIC Insights Report 14 Value Added Growth Rate in Manufacturing by Sector, % CEIC Data REAL SECTOR China Economy in a Snapshot, Q1 2020 12.01.2019 11.01.2019 10.01.2019 09.01.2019 08.01.2019 07.01.2019 Food and Beverage -0.3 -0.6 -2.7 -1.2 0.0 1.5 Pharmaceutical 5.3 5.1 7.1 7.3 8.3 7.4 Non-Ferrous Metal Smelting & Pressing 5.0 6.4 9.1 7.7 8.5 10.3 Automobile 10.4 7.7 4.9 0.5 4.3 -4.4 Electricity, Heat Production &
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