中国-市场策略-中国将在下半年把稳定放在首位

PleaserefertoimportantinformationattheendofthisreportFOCUS|CHINAPleaserefertoimportantinformationattheendofthisreportFOCUS|CHINA16July2019ChinasettoprioritisestabilityinH22019KEYMESSAGESLowerbutstillstrongGDPgrowthinQ2andH1suggests,inourview,China’seconomicresilienceinthefaceoftradetensionswiththeUS.PolicystimulusappearstohaveboostedconsumptionandinvestmentgrowthinJune,butmightnotbeenoughtooffsetdownwardgrowthpressureinH2.KEYMESSAGESLowerbutstillstrongGDPgrowthinQ2andH1suggests,inourview,China’seconomicresilienceinthefaceoftradetensionswiththeUS.PolicystimulusappearstohaveboostedconsumptionandinvestmentgrowthinJune,butmightnotbeenoughtooffsetdownwardgrowthpressureinH2.ProductionrelocationislikelytoshowamorenegativeimpactontheeconomyinH2.WethinktheofficialpolicypriorityofemploymentmightrequirefurthergovernmentmeasuresinH2.MARKETVIEWWedonotthinkthegovernmentwillneedtodrasticallyrampuppolicyeasinginH2toachieveitsannualgrowthtarget,withmonetaryandcreditpolicysettoremainaslooseasinH1.IftheFedcutsratesinJulyorSeptember,weexpectthePBOCtofollow,butwethinkthedownwardpressureonChina’sofficialandmarketinterestrateswouldbelimited.GiventheresumptionofUS–Chinatradetalksandcarefulriskmanagement,weexpectUSDCNYtoremainbasicallystablefromamacropointofview.CONTENTSH12019growthperformance 2H22019policyprospects 4Fig.1:Majoreconomicindicators(%)2018Q12019Q220195M2019June2019H12019GDPrealgrowth--6.3Agriculture--3.0Industryandconstruction--5.8Services7.67.07.0--7.0GDPnominalgrowth--8.1Industrialproduction6.06.36.0FixedassetinvestmentExports9.91.4−1.00.4−1.30.1Imports15.8−4.8−4.1−3.7−7.3−4.3Tradebalance(USDbn)351.876.3106.4130.251.0181.2Retailsales9.09.88.4GDPdeflator--1.7CPIPPI0.40.00.3M2growthTotalsocialfinancing9.810.710.910.610.910.9Sources:CBIRC,BNPParibasXDChen,ChiefChinaEconomist|BNPParibasChinaLimitedBeijingBranch|DEEPDIVE 16/07/2019 1H12019growthperformanceGrowthwellwithintarget:China’sGDPgrewby6.2%y/yinQ22019–slowingfrom6.4%inQ12019and6.6%in2018,butrelativelyhighat6.3%forH1onaverageFigure2).Thoughata27-yearlow,itremainscomfortablyinthetargeted6.0–6.5%rangesetbythecentraleconomicworkmeetinginDecemberandthePeopleCongressinTheslowdownwaswellanticipatedowingtothecyclicaldowntrend,theofficialcommitmenttoagrowthtransitionandstructuralchangesinpolicyobjectives,butthemarketsweresurprisedthatgrowthremainedashighasitdid,consideringtherecentdeteriorationintraderelationswiththeUS.HighernominalGDPgrowthinQ2:NominalGDProseby8.3%inQ2,0.5pphigherthaninQ1,despitelowerrealGDPgrowth.TheGDPdeflatorroseto2%inQ2from1.4%inQ1,drivenbyCPIinflation.Inparticular,foodpushedtheheadlineCPIrateto2.2%y/yinthefirstsixmonths,whilePPIinflationwasonly0.3%y/yinH12019.StrongerinvestmentmomentuminJune:Grosscapitalformationcontributed1.2pptoGDPgrowthinH1.ThissuggeststhattheGCFcontributiontoGDPgrowthincreasedto1.6ppinQ2from0.8ppinQ1,whichisechoedbythegrowthimprovementoffixedassetinvestment.theFAIgrowthrateforH1pickedupto5.8%from5.6%inthefirstfivemonthsof2019,growthinJunelookstohaveacceleratedto6.8%(seeFigure3).Althoughuncertaintycausedbythetradewarandweakbusinessconfidenceaboutthepoliticalenvironmentiskeepinggrowthmomentummutedingeneral,therewassomeimprovementinmanufacturinginvestment.Itgrewby4.5%inJune,upfrom2.7%in5M2019.However,thetotalforH1wasstillonly3%growth,substantiallylowerthan6.8%inH12018and9.5%in2018.Moreimportantly,growthininfrastructureinvestmentimprovedtoasimilarextent,to4.7%inJunefrom2.6%in5M,thoughwithanoverallH1growthrateofonly3%.Wethinkinvestmentinproperty–thestrongestgrowthperformersofarthisyear–islikelytohavepeaked.Inourview,itsslowdownto9.5%inJunefrom12.2%inAprilcanbelargelyattributedtopoliciesthataimnottore-ignitepropertyasagrowthengine(seeFigure4).Exportresilience:Althoughproductionrelocationhasbeenagrowthworry,theexternalsectorheldupfarbetterinthefirsthalfthanthemarkethadfeared.Exportsstillgrewby6.1%y/yinH1inRMBterms(0.1%inUSDterms).Netexportsofgoodsandservicesmadeup1.3ppofthe6.3%GDPgrowth–at20.7%,morethancapitalformation.inainChineseexportstotheUSinH1,toUSD199.4bn.Therewasanevenlarger29.8%fallinUSimports(toUSD59bn),duelargelytoChina’stariffretaliationandUSsalerestrictions.China’stradesurpluswiththeUSroseby4.8%toUSD140.4bninH1(seeFigure5).Chen,ChiefChinaEconomist|BNPParibasChinaLimitedBeij

Fig.2:Growthremainedwithintargetrange(%)Sources:ChinaNBS,BNPParibasFig.3:NetexportsdeterminedGDPgrowth(%)Sources:ChinaNBS,BNPParibasinSources:ChinaNBS,BNPParibasFig.5:Betterperformanceofex-USexportsSources:Chinacustoms,BNPParibas|DEEPDIVE 16/07/2019 2China’stradesurpluswiththerestoftheworldmorethantrebledtoUSD42bninH1,withexportsrisingby1.5%whileimportsfellby1.9%.Overall,importsfellby4.3%inH12019,comparedwith20%growthinH12018,wideningChina’stradesurplusingoodsby33.9%toUSD181.2bn.Regardlessofexports’resilienceinH12019,weexpecttheexternalsectortocontinuetosufferfromtheglobaleconomicslowdownandUS–Chinatradetensions.Industrialsalesforexportsslowedto1.9%inRMBtermsinJuneand4.2%inH1onaverage,downfrom5.7%inH12018.Weretheretobefurthertariffhikes,wewouldexpectmoreproductiontoberelocatedoutsideChina,withaclearernegativeimpactonindustrialoutputinH22019.Consumptionremainssubdued:AccordingtotheNBS,consumptioncontributed3.8pptoGDPgrowthinH1,comparedwith4.2ppinQ1–ordownfrom65.1%ofGDPgrowthto60.1%.Inourview,3.8ppof6.3%isastrikingreductionfrom4.4ppof6.7%inH12018,consistentwithslowdownsinretailsalesandservicesoutput.Retailsalesslowedto8.4%inH12019from9.4%inH12018,whichwewouldattributemainlytopoorconsumerconfidenceinjobsecurityandincomegrowth.Althoughthesurveyedunemploymentrateremainsrelativelylow(5.1%inJune),disposableincomegrewbyonly5.7%inrealtermsinH12019,below6.3%GDPgrowth.

Likewise,real-termsgrowthinservicesoutputfadedto7%inH12019from7.7%inH12018and7.6%in2018.Wethinkthestrongreboundinretailsalesofconsumergoods–growthof9.8%inJuneafter8.3%in5M2019–mightprovetobeanunsustainableone-off,largelyduetovehiclesales.Excludingvehicles,retailsalesofconsumergoodsrosebyonly8.2%,belowtheJanuary–Mayaverage.Autosalesreversed12monthsofcontractioninJunetosurgeby17.2%(seeFigure6).Theannouncementoftightervehicleemissionstandardsformostcitiesfrom1Julyforceddealerstodisposeofinventorywithpricecutsandothersalespromotions.RisksofPPIdeflationreturn:Theconsumerpriceindexhaskeptrising,from1.7%y/yinJanuaryto2.7%y/yinJune,andaveragedat2.2%y/yinH12019,mostlybecauseofapoordomesticfruitharvestandthenationwideoutbreakofAfricanswineflu.Fruitpricessurgedby42.7%y/yinJune,witha16.1%y/yriseforH1onaverage;porkpricesroseby21.1%y/yinJuneand7.7%y/yinH1(seeFigure7).CoreCPI(excludingfoodandenergy)andCPIexcludingfruitandvegetablewereboth1.8%y/yinH1.However,PPIinflationwas−0.3%m/mor0%y/yinJune,andaveragedatonly0.3%y/yforH1.Weexpectbaseeffectsandsequential0.2%increasesonaverageoverH2toadduptozeroPPIinflationonayear-on-yearbasisfor2019.Fig.6:One-offspikeinretailsales(%y/y)Sources:ChinaNBS,BNPParibasChen,Chen,ChiefChinaEconomist|BNPParibasChinaLimitedBeij

Fig.7:FoodpricesdrivingCPIupwardtrend(%y/y)Sources:ChinaNBS,BNPParibas|DEEPDIVE 16/07/2019 3H22019policyprospectsNoshort-termgrowthfocus:Unlikemarkets,thegovernmenthasnotbeenpayingparticularattentiontogrowthfiguresoverthepastfewmonths,inourview.Instead,wethinkmostgovernmentdepartmentshavestucktotheprioritiestheyhadbeforethedownwardpressureongrowthmomentum,whichtendedtoemphasisecontrollingriskevenattheexpenseofnegativegrowtheffects.Earlierthismonth,ChairmanGuoShuqingoftheChinaBankingandInsuranceRegulatoryCommissionreiteratedtheneedtokeepintensifyingfinancialregulationandstressedtheimportanceofriskcontrols.TheMinistryofHousingandUrban-RuralDevelopmenthascontinuedtoreininhousingpricerisingacrossthecountry.Inmid-June,Vice-PremierLiuHeurgedthemarketnottooverreacttoshort-termgrowthdataandfocusonthemedium-tolong-termoutlook.Chinesepolicymakershavebecomemorerealisticinfacingthechallenges,inourview.WedonotthinktheresumptionoftradetalksandsuspensionofnewtariffsafterPresidentDonaldTrumpandPresidentXiJinpingmetinOsakahasdistractedChinafromitslonger-termpolicies.Tradeconflictscanhaveprolonged,extensiveandpersistenteffectsthatwethinkrequiredecisiveandtime-consumingmeasurestoopenuptheeconomyandunleashthegreatpotentialofdomesticdemand.Despitepolicymakers’assurancesthattheyhaveplentyoftoolsintheirpolicykit,webelievetheyareconstrainedintheshorttermandthatstimulusmeasureswillhaveamuchweakermarginaleffectoneconomicgrowththanin2008–09and2015–16.Inour

view,Chinamightallowafurtherslowdownaslongasgrowthdeceleratesmodestlyandatagradualpace.Moreinvestmentprojects:WeexpecttheChinesegovernmenttodowhatitcantosafeguardgrowthstabilitywithaneyeonitsprincipalobjectiveofstabilityinthelabourmarketandthefinancialsystem.Inparticular,theNationalDevelopmentandReformCommissionandlocalgovernmentsarelikelytoembarkonmoreinvestmentprojects.InfrastructureinvestmenthasbeenChina’smosteffectiveshort-termpolicylevertocounterdownwardpressureongrowth.InH1,however,itgrewbyonlyabout3%–wellbelowboththe17.9%averagefor2012–17andwhatthegovernmentwants,inourview.Wewouldattributemuchofthelackofinfrastructureprojectstotheineffectivenessoffiscalpolicyinstimulatingtheinfrastructureinvestmentsofarthisyear.Employmentstimulus:Thelabourdepartmentreported7.73millionnewjobswerecreatedinurbanareasinH1,accomplishing70%ofthefull-yeartargetof11million,andtheend-Juneunemploymentrateremainedrelativelylowat5.1%.Intheabsenceofofficialdata,ouranalysisindicatesthatjoblossesandworriesaboutjobsecurityareincreasing,asaredifficultiesinfindingemployment.Beijingandsomeothercitieshavebeenencouragingnight-timeeconomicconsumptionby,forexample,extendingrunninghoursforpublictransportandreversingearlierrestrictivemeasures.Weconsiderthisamajorrethinkofpoliciestodiscourageorevenclosedownthenight-timeeconomyaspartofacrackdownoncorruptionandanti-socialbehaviour.Chen,ChiefChinaEconomist|BNPParibasChinaLimitedBeij

Fig.9:Marketinterestrateshavebeentrendingdownunderlooseningcreditpolicy(%)Sources:CBIRC,BNPParibasingBranchSources:CBIRC,BNPParibasSources:CBIRC,BNPParibasingBranch|DEEPDIVE 16/07/2019 4Noneedforfurtherdrasticeasing:Loosemonetaryandcreditsupplypolicieshave,inourview,beenappropriateforthelevelofeconomicactivityoverthepastsixmonths.M2wasupby8.5%y/ybytheendofJune,inlinewithnominalGDPgrowthof8.1%y/y.Outstandingtotalsocialfinancing–anindicatoroftheaggregatecreditsupply–roseby10.9%y/yinH1.IncrementalTSFamountedtoRMB13.2trn,RMB3.18trnor31.6%morethaninH12018.Theovernightreporatefelltoasub-1%recordlowinJune,whiletheweighted-averageinterbanklendingrateof1.7%inJunewas0.54pplowerthaninMayand1.03pplowerthanJune2018.However,therearestillcomplaintsabouttightliquidity,mainlyfromsmallbanks,non-bankfinancialinstitutionsandsmallWethisispartlythelingeringimpactoftheofficialtakeoverofBaoshangBankinMay,whichsharpenedthecreditriskdifferentiation,dilutedtheimplicitguaranteeofbanksandemphasisedcounterpartyrisks(seeDeepDive:Sharpeningcreditriskdifferentiation,dated11July2019).PBOClikelytofollowFed:WebelievethePeople’sBankofChinawillhavetorespondiftheUSFederalReserve,asexpected,cutsinterestratesinJulyorSeptember.Webelieveitwouldbemorelikelytocutthereporate,asithasinthepast,ratherthanthebenchmarkrate,whichhasbeenunchangedsinceOctober2015.ThePBoChaslongindicateditwantstoterminatebenchmarkrateandtodevelopagenuinecentralbankpolicyratethatwouldforcecommercialbankstoimplementarisk-basedpricingmechanism.Possiblefiscalrevenuerethink:Wecannotruleoutarevisionofthe2019budgetorotherrevenue-enhancingmeasures.Tokeepupaggressivefiscalpolicy,thePolitburo’ssummereconomicmeetingmightfindwaystodirectmoreresourcestoboththecentralandlocalgovernments.

Fiscalpolicyhasbecomemoreaggressivesincethebeginningoftheyear,withcutsworthRMB893bn(or2.3%ofGDP)tovarioustaxesandfeesoverthefirstfivemonths.Asaresult,primaryfiscalrevenuegrewbyonly3.8%inJanuary–May,wellbelow8.1%nominalGDPgrowthinH1.Bycontrast,primaryfiscalexpendituresurgedby12.5%inthefirstfivemonths.LocalgovernmentsissuedRMB1.2trninspecialbondsinH1,overdoubletheamountofH12018.SuchaggressivefiscalpolicydoesnotappeartohavebeenaseffectiveasbeforeinbolsteringaggregatedemandandGDPgrowth.Retailsalesofconsumergoodshavekeptweakening,whilethereboundininfrastructureinvestmenthasbeentooweaktooffsetdeclinesinotherinvestment.What’smore,thefiscalpolicymeasuresinH12019seemtohaveleftlittleroomformoreinthesecondhalf.Fiscalexpenditurecangrowbyonly2.9%y/yinJune–Decembertokeeptothebudgetedamount,aremarkablydropfrom12.5%growthin5M19.Atend-May,thefiscaldeficitwasalreadyasizeableRMB310.4bn,comparedwithasurplusofRMB395.5bnatend-May2018.With55%ofthebudgetedlocalgovernmentspecialbondsalreadyissuedinH1,onlyRMB960bnisavailableforthesecondhalf.Continuedcurbsonhousingprices:Withstrongpropertyinvestmentsofarthisyear,somemarketparticipantshavecalledonthegovernmenttosupporteconomicstabilitywithlooserhousingpolicy.Butthegovernmentappearsdeterminedtopreventlimitfurtherhousingpricerises.Monetaryandfinancialauthoritieshaveactuallytightenedcreditsupplyforpropertydevelopmentandmortgageloans.Fig.10:Moreaggressivefiscalpolicy

Fig.11:PropertyinvestmentpeakedoutSources:ChinaNBS,BNPParibasChen,ChiefChinaEconomist|BNPParibasChinaLimitedBeijSources:ChinaMoF,BNPParibasingBranch|DEEPDIVE 16/07/2019 5Chen,ChiefChinaEconomist|BNPParibasChinaLimitedBeijSources:ChinaMoF,BNPParibasingBranchAssuch,nationwidehousingsalesdroppedby1.8%y/yinH1,comparedwithgrowthratesof3.3%inH12018and16.1%inH12017.Housingcompletionsfellby11.7%inthefirsthalf,whilenewlandacquisitionforpropertydevelopmentplungedby27.5%.Weexpectthepropertysectortokeepgrowing,albeitatagraduallyslowerrate.Floorspaceunderconstructionstillroseby8.8%y/yinH1,withincreasesof10.1%infloorspacenewlystartedand7.2%infundingsupplyforpropertyinvestment.CNYstabilitytobemaintained:USDCNYendedJuneat6.8747,withtheyuan0.2%weakerthanatend-2018ordown3.7%y/yamidoveralldollarstrength.TheRMBindexfellto92.7inJunefrom95.7inJune2018,whiletheDXYroseto96.1from94.2overthesameperiod.Webelievethegovernment’spolicystanceislikelytobethemostdecisivefactorfortheCNYexchangerateintheshorttermandindeedthroughoutH22019,withUStradetensionsandmarketspeculationalsoplayingapart.WeseelittleintheofficialreservestoshowthatthePBOCdirectlyintervenedintheexchangerateinthefirstsixmonths,butitdoeslooktohavestrengthenedcontrolsofcapitalflows.IssuingcentralbankbillsinHongKonghelpedtoreininmarketspeculationinCNH.WebelieveChinawillcontinuetoholditsofficialstanceforFXstabilityoverthenextsixmonthsasUS–Chinatradetalkscontinue.

Fig.12:USDCNYstablein2019YTDSources:CBIRC,BNPParibasChen,Chen,ChiefChinaEconomist|BNPParibasChinaLimitedBeij|DEEPDIVE 16/07/2019 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