China’s economy at a glance: December 2016

China’s trade surplus narrowed in November, as a strong month-on-month rebound in imports narrowed the gap.

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 Latest data point to China’s stabilisation, however fresh capital controls highlight the challenges of much-needed reform.

  • Chinese authorities tightened capital controls in late November and early December – seeking to stem the tide of outflows that have pressured financial market liquidity and the exchange rate. Foreign exchange reserves fell to US$3.05 trillion in November – the lowest level since March 2011. The tighter control measures include greater scrutiny over outward foreign investment, a lower monetary threshold for approval of cross-border money transfers and restrictions on gold imports. These new controls highlight the mixed progress on reform since the 2013 Third Plenum.
  • Growth in China’s industrial production was marginally stronger in November – increasing by 6.2% yoy (compared with 6.1% in both October and September). This growth rate was just ahead of market expectations.
  • China’s fixed asset investment recorded slightly weaker growth in November – which may mark the end of the modest recovery in investment from the weak levels mid-year. Investment in real estate was marginally weaker, house sales recorded the lowest rate of growth this year and monthly growth in house prices slowed. That said, it is too early to know if the policy restrictions on the housing market are having an effect.
  • China’s trade surplus narrowed in November, the result of a strong month-on-month rebound in imports. A spike in commodity prices contributed to the increase in import values. The RBA Index of Commodity Prices rose by almost 31% yoy in November, with metallurgical coal being a standout, as Chinese domestic coal restrictions impacted global markets.
  • Real retail sales growth was stronger in November – at 9.3% yoy (compared with a twelve year low of 8.8% in October) – although this rate was below the trend across most of 2016.
  • Headline inflation was somewhat stronger in November – with the Consumer Price Index increasing by 2.3% yoy (up from 2.1% previously). Non-food prices have continued to edge higher – with prices up by 1.8% yoy – the strongest rate of increase since January 2014. Fuel prices and utility costs have been trending higher over the past few months.

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