Over the weekend, we saw a string of Chinese data that showed the economy had a slower start to the year than what many economists had expected.
First a quick roundup.
- CPI rose 3.2 percent on the year in January, and 1.1 percent on the month. Meanwhile, producer prices fell 1.6 percent on the year.
- Industrial production was up 9.9 percent on the year in the Jan-Feb period, down from 10.3 percent, and below consensus for a 10.6 percent rise.
- Fixed asset investment (FAI) was up 21.2 percent for the same period, above estimates for a 20.7 percent rise, and up from 20.6 percent in December.
- Retail sales were up 12.3 percent on the year, down from 15.2 percent the previous month and below expectations for a 15 percent rise.
- New loans fell to 620 billion yuan in February, from 1.07 trillion yuan the previous month. Total social financing (TSF) fell to 1.07 trillion yuan in Feb, from 2.54 trillion yuan in January.
Analysts are typically cautious about interpreting January or February data in isolation because of the impact of the Chinese New Year holiday. Rather, they prefer to look at data from the Jan-Feb period.
Some are worried about the weak industrial production and slowing power production growth figures. The latter was up just 3.4 percent YoY in Jan-Feb. But Bank of America's Ting Lu writes that this could have been because of "some temporary destocking in Jan/Feb due to cold winter" and that industrial production and power growth could rebound in March.
Lu also notes that the FAI/exports data was strong enough to offset weakness in the lagging data points.
He further believes that the data shows that investors shouldn't worry about monetary tightening just yet. The loan supply data and TSF show that policymakers are unlikely to step up lending, but will likely "maintain its overall pro-growth policy stance" in the first half of the year.
The decline in retail sales has been attributed to the government's efforts to curb gift-giving. We had reported on the ban on commercials for luxury goods ahead of the Chinese New Year holiday.
While Lu says the data is a 'mixed bag', Diana Choyleva at Lombard Street Research was more upbeat. "China's recovery seems to have at least maintained its momentum, if not picked up speed," she wrote in a note to clients.
Choyleva seasonally adjusted the data and looked at quarterly developments to offset the impact of the New Year holiday.
Looking at it this way, industrial production "showed quarterly growth so far in Q1 up quite sharply on Q4". But this is missing electricity and steel production data.
In terms of retail sales, Choyleva "deflat[ed] the retail sales series with the consumer price index and seasonally adjusting it".
Done this way, she writes, "the numbers show a buoyant Chinese consumer, with retail sale volumes picking up speed fast".
Remember the government just announced a growth rate of 7.5 percent in 2013 and will try and control its policies with that goal in mind.
Societe Generale's Wei Yao shares a similar view about the latest data dump. "Overall, the data till suggest that the recovery is on track, albeit more gradual than initially anticipated."
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