Signs of Rebound

CHINA - Report 28 Apr 2016 by FAN Gang and Chunyang Wang

GDP rose 6.7% y/y in Q1. Although that is still slower than in Q4 2015, improved main indicators for growth bolster our confidence in future growth.
Industrial output rose 6.8% y/y in March, up 0.7 pps from the previous quarter. Fixed asset investment excluding agriculture rose 10.7% y/y in Q1, up 1.4 pps from Q4, and 11.1% y/y, with growth especially strong in March. In Q1, the real estate market heated up, and sales were up 33.1% y/y.
Retail sales of social consumption goods rose 10.3% y/y in Q1 in nominal terms, up 0.1 pps from the previous quarter, and rose 10.5% y/y in March.
Exports in dollar terms fell -9.6% y/y in Q1, down 4.6 pps from Q4 2015. Imports fell -13.5% y/y, down 1.7 pps. However the monthly growth of exports in March was 18.7%, indicating a good possibility of further improvement.
In March, CPI rose 2.3% y/y, flat on February. One notable change was in industrial prices, which had been negative and falling for four years, but which turned upwards in March. The ex-factory price index rose 0.5% m/m, and PPI rose 0.3% m/m.
At the end of March, M1 rose 22.1% y/y, up a significant 6.9 pps from the end of 2015, and accelerating. M2 rose 13.4% y/y, which was quite stable. Savings deposits from non-financial enterprises rose 19.4% y/y, up 5.7 pps from the end of 2015 -- a major increase.
The yuan experienced moderate volatility, and appreciation against the dollar reached 6.5 in April, after bottoming out at almost 6.6 on January 7th, mainly driven by the weakening dollar due to the Fed’s failure to increase its interest rate. Capital outflow pressure is also diminishing. The exchange regime seems to be shifting from dollar pegging to currency-basket pegging, which means the RMB may still need further depreciating against the dollar soon. The trade surplus is still there, but the exchange rate nowadays is impacted increasingly by capital flows, as China’s capital and financial accounts have more opened.

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