China Economic Update – February 2013

As is usually the case for this time of year, the seasonal impacts from the Lunar New Year holiday are reaping havoc with China’s economic data. In addition to the obvious seasonal impacts, statistical authorities also refrain from releasing some of the more closely watched statistics …

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As is usually the case for this time of year, the seasonal impacts from the Lunar New Year (LNY) holiday are reaping havoc with China’s economic data. In addition to the obvious seasonal impacts, statistical authorities also refrain from releasing some of the more closely watched statistics on economic activity for January. The data that have been released paint a fairly mixed picture of the economy, but are worth mentioning nonetheless. Trade data for January saw a spike in both imports and exports, with exports growth accelerating to 25% y-o-y (up from 14% for December). While this was above market expectations, official estimates stripping out the LNY effect actually show growth decelerating to 12.4% y-o-y (down from 19.2% in December). Despite this easing in the growth rate it is still up on the sluggish pace seen for most of last year, continuing on from the surprising improvement in external demand recorded in December.

China’s monetary aggregates were also released for January, showing a sharp up-tick in credit for the month. While this is a positive sign for credit demand in the economy, it could also partly represent a bringing forward of demand ahead of LNY. Similarly, reports of a clamp down on credit issuance late last year (as some banks approached their credit limits) may have resulted in some pent-up demand as well. While the magnitude of these effects is difficult to gauge, they could suggest that the strength in January may not be sustained over coming months. It is worth noting that much of the increase in credit demand has been serviced via strong growth in non-bank financing. This is likely to concern authorities, particularly in the face of potential hot money inflows from quantitative easing in developed economies.

Finally, CPI data shows that inflation pressures remain under control, at least for the time being, although the shift of LNY to February will likely see a one-off spike in CPI next month. With the economy showing signs of improvement, we may start to see attention shifts from supporting the economy to containing prices – a sentiment hinted at with the latest quarterly monetary report from the PBoC.

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