China Center Data Flash: No bottom to the slowdown, despite stabilization

This China Center members-only Data Flash is a brief interpretive summary of China’s official monthly economic data release for August 2013 (July data). Key points include:

  • China’s most recent economic data, released last week, showed that the economy continued to stabilize into July. But does the across-the-board improvement in data mean the slowdown has hit bottom? We don’t think so.
  • Industrial production grew at 9.7 percent y-o-y in July, jumping up from 8.9 percent in June, and significantly outpacing market expectations. However, a large portion of the yearly jump was due to a low base of production in July 2012. 
  • Producer price growth, while improving somewhat, remained negative for the 17th month in a row, falling 2.3 percent y-o-y, compared to -2.7 percent in June. 
  • Export growth surprised to the upside in July, coming in at 5.1 percent y-o-y growth, up from -3.3 percent in June. Exports to the US grew at 5.3 percent y-o-y (from -5.4 percent in June) and shipments to the EU expanded at 2.8 percent (from -7.8 percent in June). 
  • Fixed asset investment (FAI) picked up slightly in July, growing at 20.2 percent y-o-y in the month, up from 19.9 percent in June. Similarly, FAI ticked up on a sequential basis to 1.58 percent m-o-m growth (sa), from 1.51 percent in June and registering the highest sequential growth since March 2013. 
  • Official numbers around credit creation fell in July, with newly issued Total Social Financing (TSF) coming in at 809 billion RMB, the lowest point since October 2011. 
  • Overall, it seems the government has been relatively successful at tamping down the WMP market and the excess credit creation that it involved. However, it is likely only a matter of time (if it is not already happening to scale) before money finds other routes into high-yield property developments and LGFVs. To fundamentally slow growth of non-bank and shadow financing, the central bank will have to take concrete steps toward slowing the growth of liquidity throughout China’s economy. The last attempt at doing so in a concentrated way created a destabilizing credit crunch in the interbank market at the end of June. 
  • We continue to expect growth in H2 2013 to be lower than in H1 2013, although the pace of deceleration seems to have moderated. 

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