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The PMIs continue to suggest that, overall, there was no lasting improvement in the cycle after the September policy push. There are though some signs that things aren't getting worse any more, with both the construction PMI and employment indicators suggesting a floor.
Gone are the days when the monetary data can make a big difference to the market mood. Today's release doesn't turn back the clock: the headline is a bit stronger, but mortgage lending wasn't, and there are distortions from Chinese New Year and definition changes.
January core CPI picked up. That doesn't look like a Chinese New Year effect, and comes after Q4 when prices were already looking firmer. This dosn't mean inflation, but if core, which has underperformed other price indicators, is now catching up, it would mean China isn't in underlying deflation.
With the BOJ's review of post-1990s Japan, we have an inventory for Japanification. Using this to assess China today, what stands out is not the similarities, but the differences. All told, on my scoring China isn't graduating to Japanification, achieving a mark of only 30%.
Data today don't help in understanding the cycle. PMI headlines softened, but that isn't unusual when Chinese New Year falls in January. The details didn't drop in the same way, but also don't look strong. Separate data for industrial profits did improve, but that isn't a reliable data series.
Official data don't suggest weak consumption. The household survey suggests it is back at the pre-covid trend, and rose relative to GDP in 2024. Retail sales don't show this strength because of rising spending on services.
Falling rates and a weakening CNY are causing concern, but I don't think they should be. If CNY weakening was pushing up onshore rates, that would be different. But $CNY rising while rates fall suggests a loosening. That doesn't ensure an economic turnaround, but it is better than a tightening.
I think the equity market – as of now SHCOMP is up 0.4% – has it about right. There are signs of a bottoming in the underlying cycle, but not the rebound suggested by the pick-up in GDP from 4.6% YoY in Q3 to 5.4% in Q4.
There are signs of a turn in the monetary data. It is tentative, but the rise in M1 relative to M2 is particularly important. If that continues, there would a real reason to feel less negative about the economic cycle.
After being -ve for most of 2024, core CPI saar rose in Q4. That seems unlikely to sustain, given the 2024 policy boost is fading. However, that core has picked up is at odds with the consensus interpretation of today's data, while being in line with the relative stability of PMI output prices.
An easing of home price deflation and the decline in narrow money growth keep alive an upside scenario where individual investors buy into the idea that policy is putting a floor under growth. But the continued fall in property sales and weakening of credit dhow any turnaround is tentative at best.
Three things stand out from the CEWC: talk of "insufficient demand"; specific policies for consumption like welfare spending; and urgency towards real estate. The overall message is encouraging, though welfare spending is unlikely to rise much given it wasn't included in the November fiscal package.
A "moderately loose" stance seems encouraging. But effecting that isn't straightforward, given nominal rates and the RRR are now so low. Rather than nominal, policy needs to work on price. That can be done by PBC BS expansion that addresses property inventories, or fiscal policy that raises demand.
After falling for most of the year, core CPI rose MoM in November. However, the impact on overall CPI was offset by a renewed softening of food prices, and PPI also remained in deflation. PPI will likely strengthen a bit more from here, but overall, deflation is still the bigger risk than inflation.
As a long-time fan, I was very pleased to have a piece in the latest China Leadership Monitor. It argues that while cyclically, spending hasn't been so bad, that isn't enough given the property bust. Even so, and despite interesting proposals from onshore economists, policy support is still lacking.
In November, the manufacturing PMI ticked up again, but the construction PMI continued to fall. But it would be optimistic to think this shows industry becoming less dependent on real estate when prices rolled over, the services PMI remains very weak, and employment continues to fall.
A chart-heavy note updating China's trade trends. Export volume growth remains strong; prices are soft but not falling sharply; EV growth is sluggish but solar stronger; direct trade continues to reorient towards EM; the growing trade surplus helps GDP growth, but not relations with the US.
A few weeks ago, we laid out a list of indicators to be watching to track whether all the policy announcements from China were generating a turn in the cycle. Looking through that list now, and it remains difficult to feel excited that they have.
With a bounce in reported retail sales, it looks like economic growth in October got back to the government's 5% growth target. Overall, though, the tone of the data was rather mixed, with real estate activity in particular still extremely weak.
The bond swap does represent substantive policy. But there still isn't support for consumption, so this does look like an effort to put a floor under growth, rather than produce a new upcycle. And while that will probably be successful, stability will be endangered by a new round of Trump tariffs.
A chart pack arguing that consumption hasn't been as weak as is often imagined, but that downside risks are growing as wage and property income falls. Policy solutions need to overcome the weakness of non-wage incomes, the strength of savings, and the pro-investment official mindset.
Likely driven by the sentiment-driven rise in prices, the manufacturing PMI bounced back above 50 in October. But there was barely any change in either the services or construction, PMIs, and both will need to improve to think that the economy really is turning around.
The government yesterday published its monthly series for the profits of the industrial sector. I am always a bit sceptical of the quality of these data. But if you want a trigger for the recent macro policy push, then the sharp fall in profits in September fits the bill.
The slump in confidence and retail sales don't indicate a major cyclical weakening of consumption. That's partly because households have been running down excess savings from covid. But with savings now normalising, consumption is becoming more vulnerable to the deterioration in the labour market.
Looking at today's data, the driver of all the recent policy activism is to get growth back to the 5% target. That doesn't suggest a big rebound in the nominal growth that equity investors need. The upside risk is this policy push is happening when there are tentative signs of property stabilising.