Chinese economic data was generally firmer than expected. The Chinese economy grew at an 8.9 per cent annual rate in the December quarter (consensus 8.7 per cent) down from 9.1 per cent in the previous quarter. It was the slowest annual growth rate in 2½ years.
- Retail sales in December were up 18.1 per cent on a year ago (consensus 17.2 per cent); industrial production was up 12.8 per cent (consensus 12.2 per cent); but fixed asset investment over 2011 was up by 23.8 per cent (consensus 24.1 per cent).
- Good news for Australia. The solid, sustainable rate of economic growth in China is clearly a good outcome for Australian raw material suppliers. The Aussie dollar held near US103.5 cents after the results while the sharemarket was up 54 points.
What does it all mean?
- Usually there are no significant surprises with Chinese economic data – results tend to come in broadly in line with economist forecasts. But not so this month, with most of the readings ahead of consensus estimates. Overall, the results indicate that the Chinese authorities have engineered a ‘soft landing’ with activity growing at a more sustainable rate and inflation on the way down.
- At first glance economic growth of 8.9 per cent hardly sounds like a ‘soft landing’. But when you consider that the economy had been growing at a near 12 per cent rate and that the long-term average growth rate is 9 per cent, the latest economic growth reading appears spot on.
- At the margin, the firmer-than-expected economic readings reduce the urgency for a significant easing of monetary policy. But as is the case here in Australia, policy certainly doesn’t need to be as restrictive, keeping the door open for a gradual lowering of bank reserve requirements.
- Some view the glass as ‘half-full’, others as ‘half-empty’. While the Chinese economy will likely slow further in 2012, it remains in strong shape and should be supported by judicious easing of monetary policy.
- You couldn’t have conjured up a better outcome for Australia. Our major trading partner is continuing to grow at a solid, sustainable rate and it is still poised to ease policy gently to maintain the current growth pace. Clearly there are challenges ahead but you would argue that both Australia and China are amongst the best placed economies to ride through challenging global conditions over the next few months.
- In commenting on the latest economic data, China’s statistical bureau chief was reported as saying that December quarter growth was “normal” but that growth was likely to ease further in coming quarters as the government tried to restructure the economy in favour of consumption rather than investment. The stats bureau chief was further quoted as saying that it will be difficult to maintain steady growth over 2012.
What do the figures show?
- The Chinese economy grew at an 8.9 per cent annual rate in the December quarter (consensus 8.7 per cent), down from 9.1 per cent in the previous quarter. In constant price terms the Chinese economy grew by 2.0 per cent in the December quarter, down from 2.3 per cent in the September quarter but in line with forecasts.
- Over 2011 consumption contributed 51.6 per cent to economic growth; investment contributed 54.6 per cent while net exports detracted 5.8 per cent from the growth pace.
- Industrial output expanded at a 12.8 per cent annual pace in December, up from 12.4 per cent in November and above forecasts centred on a result near 12.2 per cent. Production is still well off the highs of 20.7 per cent annual growth in January/February 2010.
- China’s urban fixed asset investment, such as spending on roads and power plants, grew at a 23.8 per cent annual pace in 2011, modestly below forecasts (24.1 per cent) and down from 24.5 per cent in November.
- Retail sales grew at an 18.1 per cent annual rate in December, up from 17.3 per cent in November and above forecasts, centred on 17.2 per cent annual growth.
- China processed 39.23 million tonnes of crude oil in December (9.24 million barrels per day), beating the previous record in November.
What is the importance of the economic data?
China’s National Bureau of Statistics releases its monthly economic statistics around the middle of each month. Quarterly GDP data is released around the 16th of January, April, July and October. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
What are the implications for interest rates and investors?
- At face value the firmer-than-expected Chinese economic data may translate to less urgency to ease monetary policy in both China and Australia. However we believe that the case for an easing of policy remains, but it should be applied judiciously. CommSec expects the Reserve Bank to cut rates by 25 basis points in February, in part because lending rates are still modestly above the Bank’s favoured 15-year average. The People’s Bank of China is also likely to ease bank reserve requirements by 50 basis points to 20.5 per cent within the next fortnight, but wait to assess further data before moving again.
- The latest Chinese economic data is supportive for Australia’s mining, energy and agricultural sectors. The Chinese economy is arguably faring much better than many of the gloomier economists had expected. There are challenges ahead but China faces them from a position of strength.