China Economy Update - Gov.uk
June 2017
China Economy Update SUMMARY
China Economics Network
▪
For comments, suggestions, questions, please contact us:
Chinese official data indicates growth momentum continued in May, with industrial production and retail sales steadying, and international trade picking up;
▪
Property and infrastructure investment slowed due to tightening policies, reflecting the government’s efforts to deleverage the financial market and curbing housing bubbles;
▪
Chinese ODI continues to fall: down 53% yoy for Jan-May 2017;
▪ The IMF revised up, again, China’s near and medium term growth
Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected]
Jennifer Tyldesley Consul Economic British Consulate General Shanghai [email protected]
outlook, but urged for reforms. Economic activities steady in May
significantly, leading to a total import volume rise of 9.5 per cent in May, from a year earlier. The recovery of imports in value and volume helped to ease concerns over short-term domestic demand weakening.
1. Despite signs of softening in April, official data shows China’s economy is broadly tracking market expectations in May, pointing to steady near term growth.
6. Exports also grew to 8.7 per cent year on year in May from 8.0 per cent in April, suggesting the export sector has benefited from steady improvement in external demand.
2. Growth in value-added of industrial output, a rough proxy for economic growth, managed to stay at 6.5 per cent from a year earlier after falling by 1.1 percentage points in April, slightly better than many analysts had predicted.
Fixed asset investment softened slightly
3. Retail sales came in relatively stable, rising 10.3 per cent year on year in the first five months. Online retail sales of goods and services (17 per cent of total retail sales) grew 32.5 per cent year on year.
7. Fixed asset investment growth slowed further to 8.6 percent in the first five months from 8.9 per cent in January to April and 9.2 per cent in the first quarter, but manufacturing investment speeded up to 5.1 per cent in the same period.
4. Business sentiment held up in May. China’s official manufacturing PMI remained at 51.2, unchanged from April, but 0.6 percentage points lower than March.
8. Growth of infrastructure investment continued to slow to 20.9 per cent in January to May period, 6.4 percentage points lower than in the first two months of this year when government supported infrastructure projects were frontloaded (Figure 1).
Exports and imports picked up 5. Official data shows China’s goods imports for May recovered to 14.8 per cent, in USD terms, from 11.9 per cent in April. Imports volume of a number of major commodities, including crude oil, copper and iron ore, rebounded
9. Private investment, over 60 per cent of China’s To view previous editions, overall investment, remains volatile, although please visit: https:// the notable slowing down since early 2016 seems to have bottomed recently. The growth 1
China Economy Update – June 2017 of private investment softened to 6.8 per cent in the January to May period, suggesting the sector’s appetite to invest has not yet recovered.
Figure 2: China Outbound FDI Flows (US$ mn) 25,000
80% 60%
20,000 40%
% 30
20%
15,000
Figure1 : Investment by sector (year to date, % on year before)
0% 10,000
-20%
25 -40% 5,000
20
-60%
15
0
-80%
10
5
Non-financial ODI (left axis)
Non-financial ODI YTD % YoY growth (right axis)
0
FAI
Real Estate FAI
Manufacturing FAI
14. Since late last year, China has tightened scrutiny on outbound investment to stem capital outflows as the yuan’s value tumbled to multiyear lows and rein in risks from “irrational” outward investment in property, entertainment and sports that are out of a company’s core business.
Infrastructure FAI
Housing market cooling, price diverging 10. The housing market has been stronger than expected amid waves of tightening policies since late last year but the latest official data shows growth in both property investment and housing price slowed down in May, suggesting the short-term acceleration of China’s property market may start to halt.
15. Despite the overall decline, China’s ODI to African countries increased 15.2 per cent in January to May over a year earlier. Substantial new investment in the 45 countries along the Belt and Road now accounts for 14.4 per cent of total new ODI, 6.7 percentage points higher than the same period last year.
11. Growth of property investment went down to 8.8 per cent in January to May period from 9.3 per cent in the previous four months, recording the first deceleration this year. Growth rate of new construction starts, measured by floor area, almost halved on a yearly basis from 10.1 per cent in April to 5.2 per cent in May.
Outlook remains misty 16. Noting the stable economic environment in the first five months, the IMF, revise up for the second time in three months their forecast of China’s 2017 growth to 6.7 per cent (above Chinese government’s 6.5 per cent target), and estimate an average growth of 6.4 per cent from 2018 to 2020. It, however, continued to urge reforms to wean away from growth dependant on government directed investment and debt.
12. Growth in housing prices in Tier 1 and hot Tier 2 cities slowed to 13.1 per cent and 17.4 per cent in May from 15.3 per cent and 20.3 per cent in April, respectively, reflecting a bite from the restrictive policies. But rising prices in Tier 3 and Tier 4 cities suggest investors are increasingly turning to more remote and smaller cities with fewer buying restrictions.
17. Some analysts are less optimistic, warning of: political risks in the financial market; the run up to the Party Congress this autumn; the cooling property market; slowing down infrastructure investment, and less credit support to the real economy as monetary tightening continues. These could all weigh on growth in the near term.
Outbound investment plummets 13. Official data shows that after it tumbled 48.8 per cent in the first quarter from the same period last year, China’s non-financial outbound direct investment (ODI) continued to cool down in April and May, falling 53 per cent year on year in the first five month of 2017 (Figure 2). 2
China Economy Update SUMMARY
China Economics Network
▪
For comments, suggestions, questions, please contact us:
Chinese official data indicates growth momentum continued in May, with industrial production and retail sales steadying, and international trade picking up;
▪
Property and infrastructure investment slowed due to tightening policies, reflecting the government’s efforts to deleverage the financial market and curbing housing bubbles;
▪
Chinese ODI continues to fall: down 53% yoy for Jan-May 2017;
▪ The IMF revised up, again, China’s near and medium term growth
Nicole Liu Senior Economic Advisor British Embassy Beijing [email protected]
Jennifer Tyldesley Consul Economic British Consulate General Shanghai [email protected]
outlook, but urged for reforms. Economic activities steady in May
significantly, leading to a total import volume rise of 9.5 per cent in May, from a year earlier. The recovery of imports in value and volume helped to ease concerns over short-term domestic demand weakening.
1. Despite signs of softening in April, official data shows China’s economy is broadly tracking market expectations in May, pointing to steady near term growth.
6. Exports also grew to 8.7 per cent year on year in May from 8.0 per cent in April, suggesting the export sector has benefited from steady improvement in external demand.
2. Growth in value-added of industrial output, a rough proxy for economic growth, managed to stay at 6.5 per cent from a year earlier after falling by 1.1 percentage points in April, slightly better than many analysts had predicted.
Fixed asset investment softened slightly
3. Retail sales came in relatively stable, rising 10.3 per cent year on year in the first five months. Online retail sales of goods and services (17 per cent of total retail sales) grew 32.5 per cent year on year.
7. Fixed asset investment growth slowed further to 8.6 percent in the first five months from 8.9 per cent in January to April and 9.2 per cent in the first quarter, but manufacturing investment speeded up to 5.1 per cent in the same period.
4. Business sentiment held up in May. China’s official manufacturing PMI remained at 51.2, unchanged from April, but 0.6 percentage points lower than March.
8. Growth of infrastructure investment continued to slow to 20.9 per cent in January to May period, 6.4 percentage points lower than in the first two months of this year when government supported infrastructure projects were frontloaded (Figure 1).
Exports and imports picked up 5. Official data shows China’s goods imports for May recovered to 14.8 per cent, in USD terms, from 11.9 per cent in April. Imports volume of a number of major commodities, including crude oil, copper and iron ore, rebounded
9. Private investment, over 60 per cent of China’s To view previous editions, overall investment, remains volatile, although please visit: https:// the notable slowing down since early 2016 seems to have bottomed recently. The growth 1
China Economy Update – June 2017 of private investment softened to 6.8 per cent in the January to May period, suggesting the sector’s appetite to invest has not yet recovered.
Figure 2: China Outbound FDI Flows (US$ mn) 25,000
80% 60%
20,000 40%
% 30
20%
15,000
Figure1 : Investment by sector (year to date, % on year before)
0% 10,000
-20%
25 -40% 5,000
20
-60%
15
0
-80%
10
5
Non-financial ODI (left axis)
Non-financial ODI YTD % YoY growth (right axis)
0
FAI
Real Estate FAI
Manufacturing FAI
14. Since late last year, China has tightened scrutiny on outbound investment to stem capital outflows as the yuan’s value tumbled to multiyear lows and rein in risks from “irrational” outward investment in property, entertainment and sports that are out of a company’s core business.
Infrastructure FAI
Housing market cooling, price diverging 10. The housing market has been stronger than expected amid waves of tightening policies since late last year but the latest official data shows growth in both property investment and housing price slowed down in May, suggesting the short-term acceleration of China’s property market may start to halt.
15. Despite the overall decline, China’s ODI to African countries increased 15.2 per cent in January to May over a year earlier. Substantial new investment in the 45 countries along the Belt and Road now accounts for 14.4 per cent of total new ODI, 6.7 percentage points higher than the same period last year.
11. Growth of property investment went down to 8.8 per cent in January to May period from 9.3 per cent in the previous four months, recording the first deceleration this year. Growth rate of new construction starts, measured by floor area, almost halved on a yearly basis from 10.1 per cent in April to 5.2 per cent in May.
Outlook remains misty 16. Noting the stable economic environment in the first five months, the IMF, revise up for the second time in three months their forecast of China’s 2017 growth to 6.7 per cent (above Chinese government’s 6.5 per cent target), and estimate an average growth of 6.4 per cent from 2018 to 2020. It, however, continued to urge reforms to wean away from growth dependant on government directed investment and debt.
12. Growth in housing prices in Tier 1 and hot Tier 2 cities slowed to 13.1 per cent and 17.4 per cent in May from 15.3 per cent and 20.3 per cent in April, respectively, reflecting a bite from the restrictive policies. But rising prices in Tier 3 and Tier 4 cities suggest investors are increasingly turning to more remote and smaller cities with fewer buying restrictions.
17. Some analysts are less optimistic, warning of: political risks in the financial market; the run up to the Party Congress this autumn; the cooling property market; slowing down infrastructure investment, and less credit support to the real economy as monetary tightening continues. These could all weigh on growth in the near term.
Outbound investment plummets 13. Official data shows that after it tumbled 48.8 per cent in the first quarter from the same period last year, China’s non-financial outbound direct investment (ODI) continued to cool down in April and May, falling 53 per cent year on year in the first five month of 2017 (Figure 2). 2
