China keeps exceeding expectations

China advanced a robust 7.9% year-on-year in the fourth quarter of 2012, above consensus forecasts although significantly below the rate of 10% we were used to. Growth for 2012 was up by 7.8%, the smallest increase in the last thirteen years, although this figure exceeds expectations. This consolidates the gradual strengthening of the Chinese economy and leads us to think there will be higher growth in 2013 (around 8%) thanks to a more favourable base effect.

The fact is that, since the second quarter of the year, the Asian giant has accelerated its growth non-stop, albeit progressively. The lowest point in the cycle occurred in the first quarter of 2012 when the economy grew by a meagre 1.5% compared with the previous quarter. Since then, growth has been around 2.0%. We might say that the real turning point came in the second quarter of the year.

Expansionary monetary policies carried out during the first three quarters of 2012, with two cuts in the official interest rate, totalling 56 basis points, down to the present rate of 6%; numerous reductions in the cash reserve ratio; and greater credit facilities all have a lot to do with this gradual strengthening of the Asian economy.

In spite of this progressive upswing, prices have remained under control. In December, inflation rose to 2.5% year-on-year, higher than November’s figure but far below the government’s target of 4.0%. December’s upswing is seasonal in nature and can be put down to the food component, which accounts for one third of China’s shopping basket.

Consequently, in an environment such as the present, namely of clear improvement and with a growth target lowered by the country’s government, around 8% compared with the previous figure of 10%, and relatively stable prices, we do not expect any significant changes in the central bank’s policies during 2013.

In this respect, the most recent activity indicators merely confirm the country’s gradual improvement. In particular, industrial production grew by 10.3% year-on-year in December, higher than the 10.1% of November. Similarly, retail sales pushed forward with a rise of 15.2% year-on-year in nominal terms, above the annual average of 14.0%. For its part, cumulative urban fixed capital investment continued to rise at a rate of around 20% in the period from January to December.

In the foreign sector, exports picked up again after a disappointing November in trade terms, making it clear that trade flows are very volatile from month to month and it is therefore advisable to analyze longer periods in general. Consequently, for the year as a whole, exports grew by a robust 7.9% in nominal terms while imports rose by 4.3%. Broken down by zone, exports to the United States and ASEAN countries (Association of Southeast Asian Nations) have grown more than the total. On the other hand, exports to Europe, which account for 16% of all exports, have fallen by 6%. There is no doubt that the euro area’s double dip recession is harming its trading partners, including China.

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