Trade surplus with the U.S. grew
Growth in October was stable, but slower. Industrial output was up 5.9% y/y, up only 0.1 pps from September. Investment was up 8% y/y, having risen for three consecutive months, and up 5 pps from July. State investment has accelerated, to counteract other negative growth factors.
Retail sales of consumer goods were up 8.6% y/y in nominal terms in October, down 0.4 pps from Q3, and up only 0.1 pps from May. Sales’ real growth rate was 6.5% y/y, down 0.9 pps from Q3, to their lowest rate in this cycle of economic slowdown.
Trade is booming, the U.S.-China trade war notwithstanding. Exports were up 20.1% y/y, and up 9.8 pps from Q3. Imports rose 26.3% y/y, up 7.3 pps. The trade surplus with the United States widened in particular, possibly thanks to the strong dollar, to 218.1 billion yuan in October, up 23.9% y/y.
Price growth is expected to fall amid the current unloosened monetary policy. In October, CPI rose 2.5% y/y, the same rate as in September. The ex-factory price index of industrial output and PPI grew 3.3% and 4% y/y, down 0.3 pps and 0.2 pps from September, respectively.
M2 was up 8% y/y, down 0.3 pps from September; M1 was up 2.7% y/y, down 1.3 pps, to a new low since this downturn cycle (it was already below the bottom in its last cycle in March 2015). Yet the trend is still declining rapidly. The Central Bank has an incentive not to lower the interest rate, to keep the RMB buoyant.
The infrastructure investment growth rate saw its first rise in October, up 3.7% y/y, and up 0.4 pps from September. This has been shown in recent intensive announcements for new openings and approvals of mega-projects. The Chinese government’s relatively low public debt, at 47.6% of GDP, in comparison with its international peers, has made such investment possible and sustainable for some time. Stronger monitoring by the central government of local government spending may improve infrastructure investment efficiency. The low central government debt also makes tax reduction possible, as the government has announced on November 1st it would reduce the value added tax rate for private firms, SMEs and high-tech companies. Both infrastructure investment and tax cuts will generate future growth, and the former will give a boost to the economy, even in the short term.
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