GDP

PBoC surveys show exporter sentiment, inflationary pressure continue to weaken

Two sets of survey data released by China's central bank on Thursday show business sentiment among China's entrepreneurs continues to weaken. Of 5,000 companies surveyed by the People's Bank of China (PBoC), 24.8% believe China's economic status to be 'relatively cool' while the percentage of those believing that conditions are still normal slipped to 67.1% from 74.3% in the first quarter. A separate index of company owners' views of economic conditions for the fourth quarter declined 6pp QoQ to 41.7.

What's in store for 2012?

Discussions at this week's Central Economic Work Conference hint at things to come for economic policy in 2012.

Discounting buoys property sales in some cities

Cash flow is king for property developers weighed down by debt.

October numbers show a 2011 soft-landing

Industrial output, retail sales and power production showed a slowing year-on-year trend in October, but the pace of moderation suggests that China is on track to achieve a soft-landing. We reiterate that GDP is most likely to come it at around 9.3% YoY for 2011 (CC Dec 23 2010 Macro View and CC Oct 6 Macro View), posting Q4 GDP YoY of just under 9%.

Inflation ebbs, significant liquidity easing seen

Inflationary pressures eased in October, with the Consumer Price Index (CPI) showing a 5.5% YoY increase, down from a 6.1% YoY rise in September and the Producer Price Index (PPI) posting a 5% YoY rise against a 6.5% YoY increase in September. The numbers are in line with expectations (CC Nov 3 Macro View) and reinforce our call that significant liquidity easing is likely in the coming few months.

Inflation still not quelled

What is puzzling, is that amid this rising inflation, liquidity remains neutral to loose.

Inflation and growth suggest further tightening

China's inflation rate in March, coupled with a rebound in M2 money supply and a fairly robust Q1 GDP growth rate suggest further policy tightening in Q2 this year, coupled with redoubled official scrutiny toward the property market. We think that a further hike in interest rates is possible (CC Apr 7, Macro View) and another increase in the bank required reserve ratio is likely.

Inflation and growth trends diverge

"Apparently in opposition to the inflation story are several signs that key growth drivers were slowing in January compared to a robust December, according to China Confidential surveys."

Looking off stage

Of course, the Central Economic Work Conference, which decided key economic targets for 2011 in Beijing over the weekend, is important. However, it is much less important – and less predictive of China's destiny – than what is happening off stage in the real economy.

A shudder in Zhongnanhai

The imposition of controls on prices and the supply of food and energy show deep disquiet in Beijing, but it will take several months to bring the root cause – ballooning money supply – under control.

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12 Jan 2012

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