Strong China data: Production fastest in 5 months;

Chinese economic data

• Chinese retail sales rose at an 11.2 per cent annual rate in the year to November. The result was above forecasts (+11.1 per cent) and the fastest in 11 months. Excluding petrol, retail sales were up 13.1 per cent over the year.
• Production: Industrial production rose at a 6.2 per cent annual rate in November, above the forecast average (5.6 per cent) and the fastest growth in five months.
• Investment: Urban investment rose by 10.2 per cent in the 11 months to November (forecast 10.1 per cent).
• In other data released yesterday, money supply rose 13.7 per cent in the year to November (forecast 13.4 per cent); new Yuan loans 708.9 billion (forecast 700 billion); loan growth +14.9 per cent (forecast 15.3 per cent).

What does it all mean?

• The doomsayers will need to find another target – Chinese economic data uniformly beat market expectations in November and the lift in annual production growth was the greatest in a year. Not only did retail sales beat forecasts, but so did production and investment. Improved growth in the global economy and stimulus measures at home have served to lift economic activity in China.
• Chinese consumers are clearly spending freely. Sales of household appliances including TVs and stereos were up 18 per cent on a year ago with mobile phones and cars in demand.
• China is the second largest economy on the planet and real consumer spending is up 11 per cent over the year – and amazingly it has maintained double digit annual growth for 11 years. Another highlight in November was online sales, up 34.5 per cent on the year.
• The Chinese consumer boom is creating different winners for Australia compared with the previous mining boom – Bellamy’s Australia, Blackmores and Vitaco are just some of the beneficiaries of the Chinese spending boom together with Australian tourist operators.
• It’s important to remember that real Chinese spending growth is actually stronger at present because petrol is counted in the retail sales data and petrol prices are plunging.

What do the figures show?

Chinese economic data

• Industrial production rose at a 6.2 per cent annual rate in November, above the forecast average (5.6 per cent) and the fastest growth in five months. In the month, production rose by 0.58 per cent – the fastest in five months.
• Car production was up 16 per cent over the year, mobile phones up 13.1 per cent and chemical fibre up 19.8 per cent. Crude steel production fell by 1.6 per cent, cement fell by 6.6 per cent and microcomputer devices fell by 23.5 per cent.
• Retail sales rose at an 11.2 per cent annual rate in the year to November. The result was above forecasts (+11.1 per cent) and the fastest in 11 months.
• In November, retail sales rose by 0.86 per cent, close to the average over the past year.
• In real terms, spending was up 11.0 per cent in November on a year ago, equalling the October result and a result that hasn’t been exceeded in 11 months.
• National online retail sales in the 11 months to November were up 34.5 per cent over the year.
• Sales of household appliances and audio visual equipment rose at an 18.0 per cent annual rate in November with building materials up 16.9 per cent, communication equipment up 12.2 per cent, grain, food up 17.1 per cent, furniture up 14.5 per cent, and cultural office supplies up 22.2 per cent. Petrol sales fell 7.9 per cent due to lower prices while car sales were up by 9.0 per cent.
• Urban investment rose by 10.2 per cent in the 11 months to November (forecast +10.1 per cent).
• Fixed asset investment was strongest in Health & social work (+55.2 per cent), Electricity, heat production and supply industry (up 29.8 per cent) and Water Conservancy, Environment and Public Facilities Management (up 28.8 per cent).
• In other data released on Friday, money supply rose 13.7 per cent in the year to November (forecast 13.4 per cent); new Yuan loans in November were 708.9 billion (forecast 700 billion); outstanding loan growth in November +14.9 per cent (forecast +15.3 per cent).

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. 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?

• The solid Chinese data is adding to the recent batch of solid Australian economic data. The bottom line is that Australian interest rate settings are firmly on hold.
• The Chinese spending boom is likely to have broader consequences for Australia. The 1.4 billion consumers in China are spending freely and some of that money is finding its way ‘down under’.