Growth Trends

China’s PMI shows resilience in January

China’s official Purchasing Managers’ Index (PMI) rose to 50.5% in January, from 50.3% in December, confirming our research showing that the domestic manufacturing sector is more resilient than expected. The resilient performance provides evidence that a looser liquidity policy adopted since last November, complemented by a cut in bank reserve requirement ratios (RRR), is helping to boost demand and keep the “soft landing” scenario on track. This being the case, we think that Beijing no longer needs to cut the RRR each month in 1H 2012, but may decide to cut the ratio around three times over the first half.

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.

China's economy, inflation cool - more easing likely

Industrial output and fixed asset investment both slowed significantly in November, and consumer price inflation also dropped sharply. We think the trends, taken together, reinforce the likelihood (CC Nov 17 Macro View) that Beijing will move to boost liquidity in the economy with several further bank reserve requirement reductions and a cut in interest rates. New administrative measures to stimulate economic demand are also likely in coming months.

Discounting buoys property sales in some cities

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

Central bank cuts reserve requirement ratio

The People's Bank of China, the central bank, today cut the reserve requirement ratio (RRR) for its commercial lenders to 21%, from a record 21.5% previously. The hike will come into effect on December 5 and marks the first RRR cut in almost three years. The cut supports our call (CC Nov 17 Macro View) that liquidity easing would continue in the near term helped by ebbing inflationary pressures.

Liquidity easing underway

Economy still slows, but outlook improves somewhat.

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.

A vibrant township economy

Vibrant township economies all over the country would supply key elements of internal resilience to any external shock.

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12 Jan 2012

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