BREE and Westpac have released their China Resources Quarterly. Here’s the executive summary:
The Chinese economy grew at a rate close to its potential in 2013 as a whole and in the December quarter alone. The general impression left by the flow of data since the previous edition of CRQ has been one of modest deterioration. The respectable performance observed in the September quarter is now looking very much like the peak for growth momentum in the current cycle phase.
Growth in heavy industrial capacity stabilised in the second half of the year, having slowed markedly in the first. Countering that, investment in transport infrastructure has been on a decelerating trajectory. Transport projects had been in the vanguard of the 2012/13 recovery, but the pipeline is no longer being replenished at a rate sufficient to maintain strong growth rates deep into 2014.
Real estate investment has improved throughout the year, with housing starts now showing clear signs of responding to the upswing in property sales. Housing prices and sales turnover have proved resilient to direct and indirect policy pressure up to the time of writing.
Heavy industrial output has just completed a strong second half with power generation, steel, cement and auto production all accelerating from their first half growth rates. Inventories are not as lean as they were a quarter ago, but they remain at perfectly manageable levels.
China’s exports to advanced markets are now growing faster than its total shipments, with Europe’s contractionary influence lessening and the US and Japan both now growing at reasonable rates. China’s imports from commodity producing countries are rising faster than its overall import bill, while machinery imports have been sluggish throughout the year.
In the monetary and financial sphere, interbank funding markets have presented a fragile facade ever since the policy induced squeeze of June 2013. One consequence of tighter liquidity has been that credit supply to the corporate sector has been inconsistent. Another has been rising stress in the trust sector. New estimates of the public debt stock have also been released, with the gross figure of 58% of GDP split roughly 40/60 between central and local government.
In terms of external finance, the second half saw strong capital inflows, which contributed to a 7.8% real trade weighted currency appreciation over the year. The People’s Bank has indicated that its preference is to withdraw from the onshore foreign exchange market, given its assessment that the marginal costs of reserve accumulation now exceed the benefits.
Despite the moderation in economic growth rates, China’s resources and energy use maintained an upward trajectory in 2013. Steel production increased by 9% to a record 775 Mt, contributing to iron ore imports reaching a record 820 Mt. Notwithstanding the implementation of policies to curb coal use, coal consumption also increased 2.6% to 3.61 billion tonnes in 2013.
Australia continued to play an important role in meeting the growth in China’s consumption, with increased export volumes registered across most commodities. Australia exported a record 442 Mt of iron ore and 42 Mt of thermal coal to China in 2013. Imports are playing an even more important role in meeting China’s overall mineral and energy demands, and in many commodity markets Australian producers have increased their market share in volume terms. This factor has mitigated the impact of lower prices on overall export earnings.
Take or leave the analysis but it’s a kick-arse chart pack.
