Chinese Economic Update – 16 December 2014

Chinese inflation dips further, industrial production and manufacturing weaken; no real change to our outlook

Chinese economic data appeared to show the economy wobbling once more last week as a raft of releases underperformed against expectations.

In detail, Chinese inflation fell once more throughout the month of November, with the most recent reading of the CPI survey coming in at 1.4% against expectations for a print of 1.6%.

Chinese industrial production growth also fell further than expected, down from 7.7% to 7.2%. This was against expectations for a lesser decline to 7.6%.

In the current week the only major piece of data to emerge from the world’s second largest economy for the period was the HSBC Flash Manufacturing PMI, which was released early on Tuesday morning.  While official projections suggested a modest dip below the 50.0 break-even line, down to 49.8, the index actually fell slightly further; with the actual number coming in at 49.5.

Despite what was without doubt a shoddy performance from the Chinese economic data department for the week, our outlook for the Chinese economy remains unchanged. In short, while the economy is set to slow further during the year ahead, the slowdown is likely to remain contained by further interest rate cuts and targeted stimulus.

In relation to equities, we continue to expect Chinese stock market performance to remain divorced from the underlying economic performance. Most notably, we see a loosening policy environment and the government’s move toward partial liberalisation of capital markets as likely to support the Shanghai Composite Index at elevated levels.

SSE Index // 10 Minute Intervals




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