Chinese numbers better than expected, but worries over soft growth remain

China’s macro numbers disappointed severely in the past weeks, but this week we saw a revival: almost all numbers were better than expected. I don’t think this will continue and that the Citigroup Economic Surprise Index will disappoint for some time.

The exports of China improved to 15.3% growth yoy, imports to 12.7%, almost double what consensus thought. China has again a strong surplus on its current account, the deficit of February was an outlier. This makes it more difficult for China to defend a weaker yuan versus the US$.

The commodity investors suddenly have new hopes because of the better import numbers for commodities.

Credit growth is better again, but the monetary stimulus did not caused to clearly higher credit growth.

The retail sales are weak in Chinese eyes. Especially car sales are disappointing. Car inventories are excessive. This will depress growth.

Fiscal revenues are improving, always a good sign.

Industrial production is growing faster, but below 10% growth is a worry for China.

You can say about the same for fixed investments: 20% is low and the trend is declining.

Especially the production of electricity is pointing to lower (c. 6%) GDP growth.

http://www.businessweek.com/articles/2012-05-31/understanding-the-china-slowdown

Money growth is stabilising, credit growth a bit better, but these Money growth numbers point to lower growth in Q2 and not yet on a recovery in H2.


Money growth and GDP growth correlate strongly in China, so this chart is the strongest evidence for soft growth for longer.

Urbanisation will continue. That will be favourable and this will help growth in the next decade(s).



Of course the $ 315B extra fiscal stimulus will also help and that forces the soft landing to be the base scenario. The only problem is that almost nobody (except jim Chanos c.s.) believes in a hard landing, so the soft landing is only priced in (so no extra upside when it occurs).