I have been warning (and documenting) about the sharp slowdown in China’s economy since February 2011 (CHINA’S INFLATION FIGHT THREATENS ECONOMY). Last month, after China released very weak data for April, I thought that the slowdown was changing gear, for the worst. The only positive economic data in April was the slowdown in inflation which was finally opening the door for Beijing to ease more aggressively. Remember that inflation is what the Party watches the most since it is the source of potential social disruptions.
Last weekend, China released a host of data for May which are the first solid indication that China will not experience a hard landing and that, in fact, it may have already soft landed.
- Retail sales rose 13.8% YoY, down from +14.1% in April. However, real retail sales rose 11%, up from +10.7% in April and stabilizing above the 10% level as CLSA’s chart below shows.
- Beijing will soon resume its “cash-for-clunkers” program. Retail sales have been weak lately but manufacturers have been anticipating the program resumption and have filled dealer showrooms. China’s Passenger-Vehicle Sales Increase 23% in May, Exceeding Estimates:
In May a total of 1.28 million sedans, sport utility vehicles (SUVs), multi-purpose vehicles (MPVs) and minivans were sold in the country, the China Association of Automobile Manufacturers (CAAM) said. In the same month of 2011, that number was 1.04 million. From January to May, deliveries climbed 5.5 percent to 6.33 million, continuing an uptrend which started in April.
Vehicle sales for May rose 16 percent from a year earlier to 1.61 million units, the car association said today. For the first five months of the year, passenger car sales increased 5.48 percent to 6.33 million units.
Note: the YoY numbers for May are distorted by the fact that deliveries fell 0.1% in May 2011 as Japanese automakers cut production after Japan’s earthquake.
- Industrial value-added is stabilizing. It rose 0.9% MoM in May following a 0.4% gain in April.
- Power production advanced 2.7% YoY in May, up from +0.7% in April.
- Fixed asset investments also seems to have found a floor. Overall FAI rose 19.9% in May after +19% in April. Importantly, State-Owned-Enterprises are back in business as CLSA’s chart shows.
- Residential real estate investment rebounded 12.8% YoY in May after cratering to +4% in April (see CLSA charts below). Resi is likely to remain spotty since Beijing wants prices to weaken some more but the worst may have been seen.
- Crucially, inflation has come down to levels which allow the Party to relax the economic belt.
Food prices were up 6.4% from a year earlier in May, compared with April’s 7.0% rise. Nonfood prices rose 1.4% from a year earlier, compared with April’s 1.8% increase. MoM, CPI edged down 0.3% in May. Food prices dropped 0.8% while non-food prices were unchanged.
Meanwhile, the producer price index fell by 1.4% YoY in May, after a 0.7% decline in April.
Fuel prices cut to fight slowdown Gasoline and diesel prices have been cut for the second time in a month amid growing government efforts to reverse a sharp slowdown in the economy.
The National Development and Reform Commission said on Friday the country will cut its retail fuel prices by more than 5.5 percent on Saturday, the deepest since December 2008, in tandem with the global slump crude oil prices.
Gasoline prices were down 5.5 percent, while diesel dropped by 5.8 percent, down from a previous cut on May 10 when prices were reduced about 4 percent.
China had raised fuel prices in February and March.
The U.S. economy rescuing China! China May Export Growth Tops Estimates As U.S. Demand Rises
Overseas shipments climbed 15.3 percent from a year earlier to a record, the Beijing-based customs bureau said today. Imports rose 12.7 percent.
May exports grew the most since October, excluding New-Year holiday distortions. Sales to the U.S. jumped 23 percent from a year earlier, the biggest increase this year, and shipments to the European Union rose for the first time in three months.
Imports rebounded from a 0.3 percent rise in April, with purchases from the U.S. close to the highest on record. Crude oil imports rose to a record, boosted by restocking as international prices dropped.
New yuan loans issued by Chinese financial institutions totaled $125.6 billion in May, up 16% from April’s total and above expectations
In addition, Beijing has unleashed a flurry of mini-stimulative measures in recent weeks, from speeded-up approvals for major projects to incentives for the purchases of household appliances, and has pushed ahead with tax changes that will spur business activity. Officials have also said they want more money poured into railway construction.
Figures released by the finance ministry Monday showed that fiscal spending in the first five months of the year was up 22% from the same period last year.
Soft, but not necessarily easy landing
China is a big, complex economy. Beijing can’t boost foreign demand and its efforts to stimulate domestic consumption are challenged by Chinese consumers’ very high savings rate. The Party is nevertheless in a much better position to kick start the economy. The recent rate cut is a good example. Even more significant is the leeway that Beijing gave banks on rates charged and paid on loans and deposits.
Note however that ISI’s China sales survey continued to weaken in early June…