Real recovery ahead
􀂃 At 6.1% y-y, many people regarded 1Q09 GDP growth as weak – it was
the lowest rate since China started publishing its quarterly growth data in
1992. Nevertheless, the gloom has since passed. The general consensus
is that 1Q09 represents the very bottom of the growth cycle, and that the
economy will start to recover from now on.
􀂃 Industrial output growth picked up strongly in March to 8.3% from 3.8% in
the first two months of the year. However, there are doubts about whether
this can be retained. Some preliminary statistics show that the growth of
power electricity generation turned negative again in April, suggesting
industrial output growth could decline. In other words, industrial production
might have been re-started too early in March, before domestic demand
materialised.
􀂃 However, we expect infrastructure investment to stimulate industrial
production, producing a real recovery from May onwards. Ongoing
investment projects should have depleted their inventories since October
(when world commodity prices collapsed), and will start to re-stock. After
four to six months of planning and preparation, capital goods and building
material orders will be made for China’s new investment projects.
􀂃 Therefore, we expect GDP growth in 2Q09 to be better than in 1Q09. April
PMI indicates that economic confidence is kept improving. Headline PMI
reached 53.5, up 1.1ppt from March and the highest since last November
(38.8%).
􀂃 But contradictorily, we still expect the growth in fixed asset investment and
retail sales to decline from Q2 onwards, having started from a very high
growth rate in Q109 (28.8% in national FAI and 15% in retail sales)
compared to industrial output (only 5.1%).
􀂃 What’s more, monetary authorities seem to have been under increasing
pressure for the massive new loans in the first 3 months, and fears of
surge in NPLs and high inflation. Indeed, the PBOC and CBRC seem to
have begun easing back on monetary expansion. CBRC started to check
lending operations of the five major banks.
􀂃 This would suffer stock market investors from struggling. As the SHCOMP
exceeds 2,500, there are limited reasons for the A-share market to re-rate
further. Many investors are becoming more interested in the H-share
market from a valuation point of view.
Contents
Monthly economic calendar ........................................................................................... 3
Thematic topics:
Growth to bottom out ..................................................................................................... 4
FAI to boost IP growth ................................................................................................... 6
China suffering from deflation in 1Q 6
PMI remains in improving trend ..................................................................................... 9
Asset reflating .............................................................................................................. 10
Credit growth to slow ................................................................................................... 12
Swine flu vs SARS....................................................................................................... 14
Property: turnaround? ................................................................................................. 16
Real demand bounce 16
Liquidity reflating prices 16
Full recovery by 2010 17
Macroeconomic monitor .............................................................................................. 19
GDP growth 19
Industrial performance 20
Sources of growth 25
Money and inflation 31
Market performance and rates 34
Appendices .................................................................................................................. 38
1. 12-month major economic indicators 38
2. 12-month major industrial products 40
3. Industrial profitability 41
4. Urban fixed-asset-investment growth by sector 42
5. Key economic forecasts 44