Robust and stable
Stability was the watchword for 2017, with growth expanding by a comfortable 6.9% for the year, 0.2 pps more than in 2016. Growth was also consistent all year, rising 6.9% y/y in Q1 and Q2, and 6.8% y/y in Q3 and Q4. Value added for primary industry rose 3.9% in 2017, up 0.2 pps from 2016; manufacturing industry was up 6.1% y/y, flat on 2016; and services rose 8% y/y, up 0.2 pps. Industrial output was up 6.6% y/y, slightly up 0.6 pps. Fixed asset investment was up 7.2%, down 0.9 pps from 2016. Price-adjusted investment was up 1.3% y/y, down 7.4 pps from 2016. Real estate sales growth cooled dramatically: plunging to just 2.5% by Q4, from the 19.5% y/y rise in Q1 falling to just 2.5% y/y by Q4. Exports picked up instead, rising 7.9% y/y, up 15.6 pps from 2016.The RMB has appreciated 8.8% y/y against the dollar since 2017, but has been virtually flat against a basket of major currencies. Producer prices continued last year’s appreciation trend. The ex-factory price of industrial goods rose 6.3% y/y, and PPI rose 8.1% y/y. CPI rose 1.6% y/y, down 0.4 pps from 2016. The main financial indicators experienced major decreases. By the end of 2017, M2 was up 8.2% y/y, down 3.1 pps from 2016; and M1 was up 11.8% y/y, down 9.6 pps.
Imports maintained their strong growth, up 15.9% y/y, and up a significant 21.4 pps from 2016. Even conservatively speaking, we expect China to surpass the United States as the world’s largest importer by 2022. Consumption demand as a rising share of import increase will be a key opportunity for investors. China will also hold its first annual national “import expo” in 2018. By contrast, U.S. President Donald Trump seems to be moving in the opposite direction, repeatedly threatening to withdraw foreign aid. Any withdrawal will give China room to expand its role in world trade.
The Chinese government initiated intensive financial reforms recently, bearing features of both liberalization and regulation. On November 10th, the government announced it would relax foreign ownership limits in financial institutions. The same day, a cabinet-level financial stability committee was established – an unprecedentedly high position. On December 20th, the central government listed alleviating financial risk as one of the top three tasks for 2018. On January 5th and 6th, three documents were issued to strengthen commercial bank regulation, related to trusted loans, bank equity and the too–big-to-fail mentality. Financial openness and liberalization can increase the efficiency of capital allocation, and further lift the real economy’s productivity, by at least increasing financial competition among financial institutions.
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