The improvement we saw in the headline activity numbers in March proved short lived with both industrial production and retail sales taking a renewed dive in April. Auto sector weakness was notably pronounced. Passenger car unit sales are down some 11% from the June 2018 peak, which is unprecedented in a developing economy with a reported growth rate as that of China.
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Underlying money supply growth remains weak, reflected in M2’s shrinking share relative to GDP. But the credit multipliers do look better, with some upward momentum suggesting that efforts to spur lending have been working, and the right type of lending as seen by the ongoing contraction of borrowing from the shadow banking sectors.
Now the Chinese New Year effects have washed through we’re getting a cleaner picture of what underlying trade growth in China looks like. While the April figures disappointed, exports back in negative territory y/y, over the first four months of the year as a whole the export figures are still marginally ahead of where they were in 2018, while imports are down around 2.5%.
While the headline China April PMIs released his morning might have disappointed, the breakdown shows these releases were not entirely all bad news. Indeed, there were a number of positive in the structure, notably the continuing recovery in NBS manufacturing export orders while output overall is still expanding at a reasonable rate and we saw some mild de-stocking.
Chinese stimulus effects have already shown up with an improvement of the macro data, notably the manufacturing PMI surveys, but the real economy numbers have also bounced. This improvement now also has official recognition, with the Chinese authorities shifting their economic assessment.
A solid set of credit numbers, suggesting the government is succeeding in reopening this transmission channel, which should begin to show up more notably in the activity and growth data from hereon in.
Larger than expected surplus and notable bounce in export growth. But given the calendar effects of Chinese New Year it’s probably best to view February/March trade data as a single batch, thus smoothing these effects.
China February IP, retail sales & fixed investment chart pack
Macro Data – China February money supply & credit chart pack
China February trade chart pack
China February NBS PMIs charts
China January inflation, money supply & credit (TSF) chart pack
China January FX reserves data adjusted for valuation effects
