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Flash PMI for September - the pick up continues

作者:Louis Kuijs

2013年09月24日 摘自:共有条评论

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  The flash Markit-HSBC PMI for September suggests that the growth recovery in China's industry that started in July has continued through September.
   The headline reading rose to 51.2, from 50.1 in August. After having been weaker than the official PMI in recent months, it has now converged to the level that the official PMI was in August. Both the overall new orders and the new export orders sub components were up substantially.
   We see the current recovery in China's industry as rooted in both better exports amidst improving global demand and solid domestic demand.
   What is driving domestic demand? Some fear, or claim, that domestic demand has recently largely been fueled by unsustainable credit-based stimulus. But that is an exaggeration. After all, China is still a current account surplus country.
   Throughout the recent slowdown the weakness in exports and industry was cushioned by continued robust growth in the service sector, especially the domestic and consumer oriented service sector, and this driver is continuing to function. Solid household income growth on a resilient labor market is a key element of this front.
   Until recently we saw robust property construction as well, although August saw weaker housing starts. Offsetting the easing in real estate investment, infrastructure and corporate investment accelerated in August.
   Looking ahead, we expect the cyclical pick up to be consolidated in the coming quarters, benefiting from the strengthening global demand outlook, which supports growth directly via stronger exports and by improving sentiment and profitability in industry and thus the willingness to invest.
   In terms of policy, we expect the government to hold on to the firmer monetary stance introduced in mid-2013. What about the rebound in August? We think this was at least in part because, after low lending numbers in June-August, business was gearing up for a recovery and as foreign and raw material trade rose. We do not think the August lending data heralds a policy-driven credit push. Given Prime Minister's Li Keqiang's recent comments warning against loose monetary policy we would be surprised if the government changed tack and allows credit growth to soar again.
   In our forecast base scenario, amidst an improving global demand outlook, we expect an uptick in qoq growth in 2013 H2 to above 8% SAAR, with around 7.6% GDP growth in 2013 and 8.2% in 2014. This base scenario is benign in that China would see decent growth while the credit to GDP ratio would be contained.
   If the improvement in exports peters out and/or private sector investment disappoints, the government would need to show restraint in not easing up on monetary policy too much, taking comfort from the cushion provided by robust growth in the domestically oriented service sector and a still favourable labour market situation. Such a scenario should still be manageable from the government's perspective. Markets would not like the short-term demand implications but would appreciate the commitment to reining in credit.
   In a more unfavourable scenario, the downward pressures on growth would remain and the government would "give in" and provide stimulus along traditional, credit-based, lines. This is the kind of scenario that would increasingly scare the financial markets. In our view, it is the least likely scenario, notably because of the messages that senior leaders such as the Prime Minister have recently given. But, given the keenness for growth and investment that there still is among many in government circles, we cannot rule it out.(Louis  Kuijs |China Economist at Royal Bank of Scotland)
    

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