China released a raft of macroeconomic data today all of which
point to accelerating growth and low inflation. Positive news out
of China should translate into good news for the global economy,
particularly in Asia. Global commodity prices may begin to
rebound if the positive data reported today is the start of a
The most widely-followed data point is industrial output.
China's National Bureau of Statistics said that industrial
production rose 9.6 percent year-on-year in October, beating the
average analyst estimate of 9.4 percent.
, "Today's reports may offer some comfort to China's leaders who
are meeting in Beijing this week for a once-a-decade power
transition and pledged yesterday to double per-capita income in
the 10 years through 2020." Bloomberg continued, "The pause in
monetary easing since July may persist as data increasingly show
the economy recovering from a seven-quarter slowdown."
The other feel-good data point out today was the consumer
price index (
), which was up only 1.7 percent, below the average analyst
forecast of 1.9 percent. Andy Rothman, China Macro Strategist for
CLSA Asia-Pacific Markets wrote, "With CPI up only 1.7%YoY in
October, down from 1.9% in September and the slowest pace in more
than two years, inflation is clearly not a policy constraint in
Rothman also points out that the decline in industrial input
prices was only 1.7 percent year-on-year in October compared to a
4.1 percent decline in September. "We are starting to see a bit
of a bump up in both input and output prices," Rothman continued,
"which is consistent with our view that the growth rate of
industrial inventory levels has slowed and a modest macro
recovery is underway."
If Rothman is correct, this could be positive for the price of
a host of industrial commodities including copper, iron ore,
coal, aluminum, and steel scrap, which have all been weaker due
to the slowdown in Chinese industrial production over the
The National Congress of the Communist Party of China, now
under way in Beijing, also marks the start of new 5-year economic
plans. Once these policies are put into effect, it should add to
the economic recovery already evident in today's data.
"We believe that China's fiscal policy will be more active
after the leadership transition this month," said ANZ economists
Li-Gang Liu and Hao Zhou cited by
The Wall Street Journal
. "Many long-term infrastructure projects will start soon as
well. We see further upside in China's heavy industry in the
following months, suggesting that China's commodity demand will
continue to increase, thus supporting global commodity
The Wall Street Journal also cited Goldman Sachs/Gaohua China
economist Yu Song who wrote, "The year-end CPI level is most
likely to remain well below the 3% level that was expected by
most, including monetary authorities, at the middle of this
year." Song continued, "Lower-than-expected inflation trajectory
tends to leave more space for policy makers to [loosen] policy.
However, we are not expecting any major further loosening
measures to be rolled out in the near term because the rebound in
activity growth should alleviate the urgency policy makers need
to do so."
Official data from China is often viewed with suspicion by
economists because it is compiled and released so quickly
following the end of the period under review. That might have
been valid a couple of decades ago when China was much more of a
command economy than it is today. But CLSA's Rothman offers
confirmation from an objective source outside the government.
"The official data we've been discussing is supported by
independent research by CLSA's China Reality Research team, which
found that conditions for private firms, the backbone of the
economy, improved in 3Q."
"CRR's unique quarterly survey of privately-owned SMEs found
QoQ improvement across a wide range of metrics," Rothman said.
"The value of new orders, utilization rates, hours worked,
operating margins and capex all strengthened QoQ. Even access to
credit improved, with only 26% of firms reporting that bank loans
were harder to obtain compared to a year ago, down from 39% in 2Q
and 76% in 3Q11."
With the outlook for growth in China improving, economic
prospects elsewhere in Asia should start to turn positive by
year-end. This should be positive for the iShares FTSE/Xinhua
China 25 Index ETF (NYSE:
), which has been sold off over the past few days.
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