Chinese Economic Update – 15 August 2014
Chinese economic indicators head south again during July; equity market continues to rally
The Chinese economy appeared to be headed for another southward turn during July when a number of economic barometers underperformed against expectations.
In detail, fixed asset investment growth slowed to 17.0% which was down from the 17.3% pace of expansion one year ago. Growth in industrial production also slowed, with the headline number coming in at a rate of 9% against forecasts for an increase of 9.2%.
In addition to lower industrial production, Chinese house prices fell across the board during the previous month; with Beijing reporting its first decline since mid 2012. This was while new loan originations plummeted when compared with the same period a year ago, with the official number coming in at 380 billion yuan, which was substantially below the 780 billion forecast.
In short, last week’s economic data appeared to paint a question mark over the recently found stability within the Chinese economy. While we continue to see slower growth and continued risk from credit imbalances as key challenges for the Chinese economy, we believe that the week’s data is largely the by product of the nation’s current monetary policy settings and that it is not indicative of a more entrenched problem.
With Chinese policy makers having battled excessive price gains in the housing market for a number of years, higher rates and oversupply now appear to be weighing on property purchases, credit demand and construction activity.
Going forward, we expect policy makers to be more vigilant toward the economic risks of too tight a policy regime in an environment where growth is slowing.
Despite the poor showing in the economic data department, the rally in Chinese equities continued throughout the week as local investors increase their holdings ahead of a number of regulatory changes which are scheduled to take effect later this year.
Given the anticipated liberalisation of the market for China’s class A shares in October this year, we continue to see further upside potential for CNY equity markets.
For further information relating to the scheduled changes please see our earlier update:
Chinese stocks continue to advance, supported by stabilising conditions at home, higher corporate earnings and hopes of deregulation
SSE Composite Index 10 Minute Intervals
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