Economics China chart book Slowing growth and weakening sentiments Group Research 13 November 1 Nathan Chow Strategist/Economist Please direct distribution queries to Violet Lee + 71 violetleeyh@dbs.com Charts of the month China s exports data in October surprised to the upside (actual: 1. YOY vs. forecast: 11.7 YOY), likely reflecting continued shipment frontloading and strong US demand. However, new export order of the manufacturing PMI suggests that the recent strength in shipment will prove fleeting. The immediate drag will come from slower GDP growth among China s trade partners. Worse, Trump might follow-through on his threat to slap tariffs on all Chinese imports. The resulting rapid deterioration of current account may influence market sentiment on financial stability, as forex reserve may increase at a slower pace or even shrink if the CNY depreciates further. Regional wise, if China had to reduce its trade surplus with the US, it would also likely reduce its trade deficits with other Asian economies. The impact of such a rebalancing should not be underestimated. Manufacturing PMI and exports Index New export order Exports (3mma, RHS) 3 1 1 9 - - 7-1 - Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 Current account as of GDP Current accout Goods Services Income - - Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Refer to important disclosures at the end of this report.
China chart book Slowing growth and weakening sentiments 13 November 1 Sales, investment, property, profits Retail sales growth has been flat; auto sales have been in negative territory the last months. Online sales have declined as well Retail sales 1 1 1 - - - - - Retail sales Automobile sales Online sales (YTD) (RHS) Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 3 3 3 3 3 Deleveraging has been most visible among SOE infrastructure investments Fixed asset investment (Ytd) Total SOE Private 1 1 1 1 Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Property price surprised on the upside, but floor space sales remained weak. Residential housing growth (YoY) 3 3 1 - Real estate investment - Property price -1 Floor space sold Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Industrial earnings weakened in September alongside slower price gains. PPI vs profits - - - PPI 3 Industrial enterprises profits (3mma, RHS) - - Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 1 - Page
China chart book Slowing growth and weakening sentiments 13 November 1 External sector Exports have been strong in recent months, likely reflecting front-loading before tariffs. Trade surplus with the US has remained at record high Merchandise trade (YOY, Trade balance (RHS) 3mma) Exports (LHS) Imports (LHS) 3 USD bn (3mma) 3 Trade balance vis-à-vis the US (3mma) Trade balance (RHS) USD bn Exports 3 Imports 3 - - - - - - Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 - - Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 Imports from major trading partners all moderated, pointing to weakening domestic demand. Import by country (3mma) 3 - ASEAN - EU US -3 Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 Share of processing trade continued to drop; yet it remained as the major high-tech exports component. Processing trade as of high-tech exports 9 7 3 1 13 1 1 1 General Others Assemble Processing Page 3
China chart book Slowing growth and weakening sentiments 13 November 1 Monetary CPI rose. in October. Food price inflation eased, while elevated fuel prices led to higher non-food price inflation. PPI, headline CPI, and core CPI 3. CPI 3. Core CPI PPI (RHS).. 1. 1.. - Oct-13 Oct-1 Oct-1 Oct-1 Oct-17 Oct-1 - - - - PBOC has kept borrowing costs on hold amid domestic liquidity strains. Interest rates Standing lending facility, 7D. Y government bond yield 7D repo rate (D mov. Avg.) 3. PBoC 7D reverse repo 3. 3. 3. 3..... Nov-1 May-17 Nov-17 May-1 Nov-1 PBOC has injected RMB33bn net to the banking system via open market operations in September. Open market operation, SHIBOR RMB bn Funds injected/withdrawn 9 in the week. 7 1-M SHIBOR (RHS) 3.9 3 - -3 3.7 3. 3.3 3..9.7 -. -Jun -Jul -Aug -Sep -Oct -Nov PBOC s accommodative stance will likely keep the borrowing cost low. -year bond yields...... 3. 3.. AAA China corporate bond China government bond. Nov-13 Jul-1 Mar-17 Nov-1 Page
China chart book Slowing growth and weakening sentiments 13 November 1 Capital flows Current account surplus rose again in Q3 as exports held up despite trade tensions. Current account as of GDP - Current accout Services Goods Income - Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Financial account maintained net inflows in Q, with a surplus of USD1.bn. Financial account USD bn - - Net errores and omissions Other investment -3 Portfolio investment Direct investment Financie account balance (non-reserve) - Jun-13 Feb-1 Oct-1 Jun-1 The Chinese yuan remained weak as trade war concerns mount. Forex reserves fell again in October with signs of some capital outflow. RMB exchange rates 3 1 99 97 9 93 91 CFETS RMB Index USD/CNY (inverse, rhs) 9 Nov-13 Nov-1 Nov-1 Nov-1 Nov-17 Nov-1..1..3....7..9 7. Forex reserves USD bn, 3,9 3, 3,7 3, 3, 3, 3,3 3, 3, 3,,9, Monthly changes (rhs) Total amount USD bn 1 - - -1 Oct-13 Jun-1 Feb-17 Oct-1 Page
China chart book Slowing growth and weakening sentiments 13 November 1 Deleveraging Shadow businesses are shifting back to the book; offbalance-sheet lending shrank for the 7 th month in a row. Total social financing (new increase) RMB tn. Bank loans Bond financing 3. Off-balance-sheet lending 3. Others.. 1. 1... -. -1. Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Intra-financial claims registered negative growth. Intra-financial claims Banks' claims on other financial corp 3 WMP fund balance M (RHS) 1 73 3 1 3 3 1 33 3 13 3-7 Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 Note: Intra-financial claims: The sum of borrowing from financial institutions and issuance of securities (debt securities, commercial paper and certificates of deposit) owned by other financial institutions. The gap between aggregate financing and nominal GDP growth narrowed to 1 percentage point in Q3. GDP and aggregate financing growth ppt 1 9 1 7 1 1 3 1 Dec-1 Sep-1 Jun-1 Mar-17 Dec-17 Sep-1 Aggregate financing - nominal GDP (rhs) Nominal GDP Aggregate financing Still, the existing large stock of intra-financial sector credit is a persistent risk to financial stability. Large banks' claims on other institutions RMB bn 7, Claims on Non Financial Institution Claims on Other Financial Corporation, Other Depository Corporation,, 3,,, Mar-13 Nov-1 Jul-1 Mar-1 Page
China chart book Slowing growth and weakening sentiments 13 November 1 Rebalancing External rebalancing advanced with national savings falling faster than investment. Investment, saving and current account as percentage of GDP Current account Saving rate 1 Investment Domestic rebalancing continued with ongoing strength in consumption. Contribution to growth ppts 9 7 3 Final Consumption Expenditure Gross Capital Formation 7 9 11 13 1 17 7 9 11 13 1 17 On the supply side, the share of services in GDP continued to rise GDP by production (as percentage of GDP) with labour relocation from agriculture and industry to service Employment by sector 3 1 9 Secondary Tertiary of total employment Primary Secondary Teritary 7 3 3 3 1 39 7 9 11 13 1 17 7 9 11 13 1 17 Page 7
China chart book Slowing growth and weakening sentiments 13 November 1 RMB internationalization Offshore RMB deposits have fallen from their 1 peak RMB deposits and CNY exchange rate RMB bn 1, 1, RMB deposit in Hong Kong RMB deposit in Singapore USD/CNY (RHS) USD/CNY 7...... Jun-13 Feb-1 Oct-1 Jun-1 RMB cross-border transactions have retreated somewhat RMB cross-border trade settlement RMB bn Trade volume 9 of total China trade (RHS) 3 7 3 3 1 Sep-13 Sep-1 Sep-1 Sep-1 Sep-17 Sep-1 The Dim Sum market started fading in 1, with a slump in the CNY s exchange rate diminishing its appeal RMB-denominated bond issuance RMB bn 3 Dim Sum Panda Foreign investors have increased their holdings of Chinese sovereign Chinese soverign held by foreign insitutitons and major soverign yields China US CNY bn. UK Eurozone. 3. 9 7 1. 1. 13 1 1 1 17 1 YTD. Chinese sovereign held by 3-1. foreign institutions (RHS) 1 Oct-13 Jun-1 Feb-17 Oct-1 Page
China chart book Slowing growth and weakening sentiments 13 November 1 Forecasts on major indicators: GDP CPI inflation 1 17 1f 19f 1 17 1f 19f Growth rate (, YoY).7.9... 1..1. Exchange rate and interest rates forecasts 1Q1 Q1 3Q1 Q1 1Q19 Q19 3Q19 Q19 USD/CNY eop...7 7. 7. 7. 7.1 7. Benchmark lending rate Government bond yields 1Y ().3.3.3.3.3.3.3.3 3Y () 3. 3.3 3.19 3.3 3. 3. 3. 3.7 Y () 3.7 3. 3.3 3.7 3.7 3. 3. 3.9 Y-3Y (bps) 19 1 3 3 Page 9
China chart book Slowing growth and weakening sentiments 13 November 1 Group Research Economics & Strategy Taimur Baig, Ph.D. Chief Economist - G3 & Asia + 7-9 taimurbaig@dbs.com Nathan Chow Strategist - China & Hong Kong + 3-93 nathanchow@dbs.com Masyita Crystallin, Ph.D. Economist Indonesia & Philippines + 1-9-3 masyita@dbs.com Joanne Goh Regional equity strategist + 7-33 joannegohsc@dbs.com Neel Gopalakrishnan Credit Strategist + 7-7 neelg@dbs.com Eugene Leow Rates Strategist - G3 & Asia + 7- eugeneleow@dbs.com Chris Leung Economist - China & Hong Kong + 3-9 chrisleung@dbs.com Ma Tieying Economist - Japan, South Korea, & Taiwan + 7- matieying@dbs.com Radhika Rao Economist - Eurozone & India + 7- radhikarao@dbs.com Irvin Seah Economist - Singapore, Malaysia, & Vietnam + 7-77 irvinseah@dbs.com Duncan Tan FX & Rates Strategist - ASEAN + 7-1 duncantan@dbs.com Samuel Tse Economist - China & Hong Kong + 3-9 samueltse@dbs.com Philip Wee FX Strategist - G3 & Asia + 7-33 philipwee@dbs.com Sources: Data for all charts and tables are from CEIC, Bloomberg and DBS Group Research (forecasts and transformations). Disclaimer: The information herein is published by DBS Bank Ltd (the Company ). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further c ommunication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or financial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified. DBS Bank Ltd., 1 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 19. Tel: -7-. Company Registration No. 193E. Page