Thomas Shik Acting Chief Economist thomasshik@hangseng.com The 2017 Outlook The mainland China economy expanded by an annual rate of 6.8% in the fourth quarter of 2016, up from 6.7% in the third quarter, reflecting an uptick in retail sales growth in the November December period. As deleveraging and destocking on the Mainland continues, risks to economic growth remain on the downside. However, with the modest improvement in the outlook for major advanced economies and the Chinese government s actions to prepare for future economic uncertainties, there is still potential for the Mainland to remain on a stable growth trajectory in 2017. Our expectation is for the Mainland economy to grow by 6.7% this year. Jan/Feb 2017
China GDP grows 6.8% in Q4 2016 Mainland China s gross domestic product (GDP) rose by an annual rate of 6.8% in the fourth quarter of last year, an improvement on the previous quarter and the consensus forecast of 6.7% (Exhibit 1). The fourth-quarter growth was the highest in a year, apparently driven by stronger consumption growth. Retail sales value jumped 10.9% in December, the highest in a year, after growth of 10.8% in November (Exhibit 2). Over the course of 2016, however, retail sales remained steady, moving in a tight range between 10% and 11%. Exhibit 1: GDP Growth Exhibit 2: Retail Sales Growth For the whole of 2016, GDP growth was 6.7%, down from 6.9% in 2015, due in large part to slower growth in investment, which accounts for about 45% of the Mainland economy. Fixed-asset investment (FAI) growth eased to a multi-year low of 8.1% last year from 10% a year before. With economic deleveraging taking place on the Mainland, risks to the economy s growth remain on the downside. As we have highlighted in past issues of China Economic Monthly, rapid credit growth in previous years has created problems with over-investment, which, in turn, has led to industrial over-capacity. The resulting deleveraging and destocking process should therefore lead to slower investment and weaker economic growth in the short-to-medium term. Jan/Feb 2017 2
That said, the more favourable external environment that has resulted from steps taken by major central banks around the world to act against economic and financial market risks should help support the Mainland s growth this year. Eurozone growth has stabilised and US growth has accelerated over recent months. Together with growing optimism about the outlook for the international economy more generally, this should benefit the Mainland s trade and manufacturing activity. In addition, experience from 2016 suggests that, if necessary, the Chinese government may still be able to take measures such as boosting public investment to stabilise the economy in the short term (Exhibits 3 & 4). Against this backdrop, our expectation is for the Mainland economy to grow by 6.7% this year, similar to the pace seen in 2016 (Exhibit 5). Exhibit 3: General Government Budget (annually) Exhibit 4: Fixed-asset Investment Growth We expect the People s Bank of China (PBOC) to keep monetary policy on hold over the coming year. Although there have been signs of economic stabilisation, followed by some pick-up in consumer price inflation, the downside risks to growth should prevent the PBOC from increasing its benchmark interest rates. Further policy easing may also lead to fresh concerns over the renminbi. We therefore expect the PBOC to maintain the 1-year lending rate and the required reserve ratio at 4.35% and 17% respectively. Jan/Feb 2017 3
Exhibit 5: Hang Seng Economic Projections (year-on-year, %) 2015 actual 2016 actual 2017 forecast Gross domestic product (GDP) 6.9% 6.7% 6.7% Consumer price inflation 1.4% 2.0% 2.4% Fixed-asset investment 10.0% 8.1% 8.0% Industrial output 6.1% 6.0% 6.0% Retail sales 10.7% 10.4% 10.5% Exports of goods -2.5% -7.7% 4.0% Imports of goods -14.4% -5.5% 4.5% Source: National Bureau of Statistics, Macrobond, Hang Seng Bank Jan/Feb 2017 4
China Economic Monitor Statistics February 2017 GDP Industrial output Fixed asset investment Retail sales Nominal Real Real Nominal Nominal Foreign trade Consumer prices Exports Imports Trade balance Food Non-food RMB bn yoy (%) yoy (%) ytd (%) yoy (%) yoy (%) yoy (%) USD bn yoy (%) yoy (%) yoy (%) 2012 54,037 7.9 10.0 20.6 14.3 7.9 4.4 232.7 2.6 4.8 1.6 2013 59,524 7.8 9.7 19.6 13.2 7.8 7.3 261.4 2.6 4.7 1.6 2014 64,397 7.3 8.3 15.7 12.0 6.0 0.7 380.1 2.0 3.1 1.5 2015 68,905 6.9 6.1 10.0 10.7-2.5-14.4 603.0 1.4 2.3 1.0 2016 74,413 6.7 6.0 8.1 10.4-7.7-5.5 547.2 2.0 4.6 1.4 Q2 2015 16,850 7.0 6.3 11.4 10.2-2.1-13.6 140.2 1.4 2.1 1.0 Q3 17,671 6.9 5.9 10.3 10.7-5.9-14.4 163.6 1.7 3.0 1.1 Q4 19,285 6.8 5.9 10.0 11.1-5.1-11.9 175.5 1.5 2.3 1.0 Q1 2016 16,157 6.7 5.8 10.7 10.3-9.7-13.3 125.7 2.1 6.3 1.1 Q2 18,074 6.7 6.1 9.0 10.2-4.5-6.8 143.4 2.1 6.0 1.1 Q3 19,053 6.7 6.1 8.2 10.5-6.7-4.7 144.3 1.7 2.6 1.5 Q4 21,128 6.8 6.1 8.1 10.6-5.3 2.2 133.8 2.2 3.4 1.8 Aug 2015 NA NA 6.3 8.1 10.6-3.2 1.4 52.0 1.3 1.3 1.4 Sep NA NA 6.1 8.2 10.7-10.2-1.9 42.0 1.9 3.2 1.6 Oct NA NA 6.1 8.3 10.0-7.6-1.3 48.8 2.1 3.7 1.7 Nov NA NA 6.2 8.3 10.8-1.5 4.6 44.2 2.3 4.0 1.8 Dec NA NA 6.0 8.1 10.9-6.6 2.7 40.8 2.1 2.4 2.0 YTD NA NA NA NA NA NA NA NA NA NA NA Deposits (domestic currency) Loans (domestic currency) New loans Lending rate RMB bn yoy (%) RMB bn yoy (%) RMB bn % yoy (%) USD bn RMB bn 2012 91,740 13.3 62,990 15.0 8,200 6.00 13.8 3,312 6.2303 15,763 2013 104,380 13.8 71,900 14.1 8,890 6.00 13.6 3,820 6.0543 17,317 2014 113,860 9.1 81,680 13.6 9,780 5.60 12.2 3,840 6.2055 16,413 2015 135,702 12.4 93,954 14.3 11,720 4.35 13.3 3,330 6.4937 15,406 2016 150,586 11.0 106,604 13.5 12,650 4.35 11.3 3,011 6.9450 17,802 1-year Money supply (M2) Forex reserves CNY per USD (period end) Total social financing Q2 2015 131,829 10.7 88,795 13.4 2,880 4.85 11.8 3,694 6.2010 4,136 Q3 133,734 12.6 92,134 15.4 3,341 4.60 13.1 3,514 6.3560 3,218 Q4 135,702 12.4 93,954 14.3 1,820 4.35 13.3 3,330 6.4937 3,396 Q1 2016 141,118 13.0 98,561 14.7 4,610 4.35 13.4 3,213 6.4536 6,700 Q2 146,240 10.9 101,486 14.3 2,920 4.35 11.8 3,205 6.6480 3,106 Q3 148,521 11.1 104,114 13.0 2,630 4.35 11.5 3,166 6.6718 3,651 Q4 150,586 11.0 106,604 13.5 2,490 4.35 11.3 3,011 6.9450 4,345 Aug 2015 148,522 10.8 102,898 13.0 949 4.35 11.4 3,185 6.6793 1,461 Sep 148,521 11.1 104,114 13.0 1,218 4.35 11.5 3,166 6.6718 1,712 Oct 149,735 11.5 104,765 13.1 651 4.35 11.6 3,121 6.7758 887 Nov 150,423 10.8 105,560 13.1 795 4.35 11.4 3,052 6.8894 1,833 Dec 150,586 11.0 106,604 13.5 1,044 4.35 11.3 3,011 6.9450 1,626 YTD NA NA NA NA NA NA NA NA NA NA NA: not available; yoy= year-on-year; ytd= year-to-date Source: State Statistical Bureau, China Statistical Yearbook, Macrobond, CEIC, Bloomberg, Hang Seng Bank Jan/Feb 2017 5
GDP Growth Consumer Price Inflation Urban Fixed Asset Investment Retail Sales Loan & Deposit Money Supply (M2) Benchmark Interest Rates Exports & Imports Jan/Feb 2017 6
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