Recovery Spotted in China's January Economic Data
Yicai Global
/SOURCE : Yicai
Recovery Spotted in China's January Economic Data

(Yicai Global) Feb. 15 -- China's economy is closer to an L-shaped turning point judging by multiple sets of key data released by the government in January.

Personal housing loans used to be the highlight, but there are signs that commercial banks are now more willing to lend to the real economy, according to last month's credit statistics. New medium- and long-term corporate lending hit an all-time high of CNY1.52 trillion (USD221 billion) against a further decline of CNY452.1 billion in bill financing.

The big jump in medium- and long-term corporate loans was an indication of stabilizing economic activity and recovering demand for credit in the real economy, as well as a positive shift in the bank lending structure following the introduction of the macro-prudential assessment system, said Lian Ping, chief economist at the Bank of Communications Ltd.

Credit is down by less than CNY500 billion compared with last year, in line with the direction and overall objectives of China's prudent and neutral monetary policy, Lian said. Changes in money supply and interest rates curbed liabilities growth at some commercial banks.

The latest data suggests that demand for financing has recovered further in the real economy, and was being diverted away from the 'virtual economy' said Zhang Jun, chief economist at Morgan Stanley Huaxin Securities Co.

Improving Profitability in the Real Economy

Institutional optimism about the real economy and willingness to increase lending to it are understandable given macroeconomic policy stimuluses and figures published yesterday by the Chinese National Bureau of Statistics. The consumer price index rose 1 percent month-on-month and 2.5 percent year-on-year in January, and the producer price index rose 0.8 percent month-on-month and 6.9 percent year-on-year, said the NBS.

Recent data reveal a clear rebound in the overall price level. A moderate increase in the core CPI is an indication that the economy is bottoming out, said Lian.

Upticks in the CPI and the PPI are connected with economic recovery and changes in global factors, said Liu Ying, analyst at Chongyang Institute for Financial Studies at Renmin University. In the fourth quarter of 2016, China's gross domestic product increased to 6.8 percent from 6.7 percent in the previous quarter. Both the carryover effect and improved economic activity are a manifestation of rising prices.

The rebound in the PPI will help companies improve profitability and reduce the actual cost of financing, enabling them to kick off the next restocking cycle, said Deng Haiqing, chief economist at JZ Securities Co.

The widening gap between the PPI and the CPI will boost profit growth in the enterprise sector and potential inflationary pressure will limit the scope of relaxations to monetary policy, meaning it will become more neutral, Guojin Securities Co. said in a recent research note.

Heavy Truck Sales Are a Positive Sign for China

Known as the barometer of China's economy and macroeconomic policy, and as a main indicator of the general standard of living, heavy truck sales had a good start in 2017. In January, production fell almost 17 percent to 81,800, but sales jumped over 10 percent month-on-month to 83,000, according to statistics from the China Association of Automobile Manufacturers. For the year, the figures were a gain of nearly 88 percent and 125 percent, respectively.

Since the second half, heavy trucks have been in short supply, and new supplies have mostly been produced based on pre-orders, CAAM said. Heavy truck production and sales grew rapidly in the period, and strong growth continued in January.

Since the fourth quarter, the manufacturing industry embarked on a new stocking cycle. The restocking of coal, other commodities and upstream raw materials led to a spike in logistics demand which gave rise to sharp increases in heavy truck production and sales, China Galaxy Securities Co. said in a research note.

Inflation Expectations Will Not Affect Monetary Policy

There is no need to worry about a change in the central bank's stance on monetary policy due to the temporary rise in inflation, said Zhang Jun. The bank does not need to tighten its monetary policy out of concern over inflation.

The CPI may drop significantly in February as seasonal factors disappear after the Chinese New Year, he said. Given the slowdown in gains to the PPI and the weakening base effect, the year-on-year increase in the PPI will decelerate in the future, and may even peak in the second quarter.

This year, China's monetary policy will be moderately tightened to control risks, and the fiscal policy will be relaxed to ensure steady economic growth, said Wang Jun, analyst at China Center for International Economic Exchanges.

Outstanding yuan loans grew CNY2.03 trillion during January, but were still down CNY475 billion year-on-year, the central bank said yesterday. Total lending to non-financial enterprises and medium- to long-term corporate loans rose from CNY1.06 trillion in January 2016 to CNY1.52 trillion. Bill financing fell CNY452.1 billion, in contrast to the CNY371.9 billion growth registered over the same period last year.

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