Chinese Monthly Update – December 2012

China’s economic indicators for November continued the broadly improving trend seen recently, supporting our expectation of a modest recovery in GDP growth this quarter. Government investment stimulus and accommodative monetary policy will help offset headwinds from external sectors.

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  • Economic indicators for November show that China’s economy is starting to recover, although headwinds from the global economy have remained. Year-ended growth in production and nominal retail sales accelerated, and fixed investment has remained robust due to stimulus investment and an improvement in the real estate sector.
  • The value of new bank loans improved in the month, but was below expectations. New non-bank credit was softer in November and the growth in money supply also eased.
  • CPI inflation picked up in November, but remains well within acceptable levels. Improving activity and low inflation remove the need for further monetary easing. Liquidity conditions appear to have improved, but a 50bp cut to reserve requirements early next year is still possible.
  • We have kept our forecast for China’s GDP growth at 7.7% in 2012, and expect growth to pick up in 2013 as recent policy stimulus gains more traction.

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