New data released out of China Sunday pointed to a protracted
bottoming of the world's fastest growing and second largest
economy. Following recent manufacturing and service data, data
released this weekend shows that the economy may not be improving
as rapidly as hoped but has not deteriorated further following
months of contraction in both the manufacturing and service
Sunday, the National Bureau of Statistics reported that
industrial production, a key leading indicator of growth, rose
10.1 percent in November from the same month a year ago, faster
than economist expectations of a 9.8 percent rise and also better
than October's reading of 9.6 percent. The rise in industrial
production data is the third consecutive monthly rise which
followed a four month bottoming process and points to better
growth prospects in the future as industrial production tends to
slightly lead, if not correlate nicely, with GDP growth.
However, trade data was not as strong as investors would have
hoped. Exports only gained at a 2.9 percent annualized rate, much
slower than the economist consensus forecast of a 9.0 percent
expected rise. In addition, imports were exactly flat as compared
to a year ago, also worse than the consensus forecast of a +2.0
percent reading. The total trade surplus for November fell to
$19.63 billion, missing forecasts of a trade surplus of $26.85
billion. The weak trade data does not bode well for Q4 GDP
however the Chinese trade data can be very seasonal and be
altered by large one-time items, so next month's reading will be
closely watched. Notably, iron ore imports, a key measure of raw
material demand in China, rose 8.2 percent as compared to a year
ago, which is a strong increase and bullish for the economy.
In addition, China reported fixed asset investment, retail
sales, and inflation data Sunday, all of which further the
bottoming thesis that many economists have held for some months
now. The data included:
- Fixed asset investment rose 20.7 percent vs. the same
period a year ago, the same as the October reading and below
economist estimates of a 20.9 percent rise.
- Retail sales rose 14.9 percent in November as compared to
the same period a year ago, better than economist expectations
of a 14.6 percent rise and better than October's reading of a
14.5 percent gain.
- CPI inflation rose 2.0 percent on annualized basis in
November, faster than the previous 1.7 percent rate of
inflation but below economist expectations of a 2.1 percent
- PPI inflation fell at a 2.2 percent rate as compared to a
year ago in November, better than the prior reading of a 2.8
percent contraction but below the market's expectation of a 2.0
percent rate of decline.
Overall, the data is mixed and points to a continued bottoming
of the Chinese economy. Recent data has not deteriorated further
as it had over the spring and summer months, however the lack of
improvement has and could continue to weigh on global economic
growth. Chinese growth has been subdued due to weakness in the
eurozone, its largest trading partner when taken as a collective
economic block. Also, the slowdown in U.S. economy experienced
over the last few months as corporate investment has slowed due
to the Fiscal Cliff has weighed on China as the U.S. is its
second largest trading partner.
Thursday night, the HSBC China Manufacturing PMI is set to be
released and will shed further light on the state of China's
manufacturing sector, its largest economic sector. Comments on
trade will be key as trade has been the largest part of the
Chinese economy to suffer in the recent downturn. Watch the
iShares FTSE/Xinhua China 25 ETF (NYSE:
) and the price of copper as key market indicators of the health
of the Chinese economy as well as the AUD/USD exchange rate.
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