Spot Analysis

Exports fell by 0.5% (Y-Y).
Imports fell by 15.3% (Y-Y).

Chinese new year, which was in January, had a negative impact on January`s trade balance. Therefore, the fall in exports should not be over-interpreted. Nevertheless, the significant fall of imports is eye-popping. This underscores the falling import dynamic, which have been already seen in the last couple of months. Today`s published figures make the lower domestic dynamic more obvious. Therefore, domestic demand will not be able to compensate a drop in exports. The first half of 2012 will be a meager one.

The unexpectedly increase in China`s CPI will hamper a monetary easing in the short term. For drawing any conclusions, the People Bank of China will wait for inflation datas of the next months.

In our point of view, the increase in the inflation rate should not be interpreted as a first signal for another wave of price increases. Prices for pork, grains and oilseeds are quite low in comparison to last year. The base effect will push down CPI figures below 4% in the upcoming months.

The overheated Chinese real estate market is showing signs of relaxing price pressure. Therefore, the People Bank of China can still take things nice and slow. The door for a monetary easing will be open in the next couple of months - despite the recent increase.

China’s official Manufacturing PMI released by the National Bureau of Statistics and Federation of Logistics and Purchasing increased in January from 50.3 to 50.5.

The economic path for the year 2012 is gaining contour. After a weak first half-year of 2012 a stronger economic momentum will be on the agenda in the second half 2012. The indicator for new orders jumped above the expansion level of 50, which is quite positive. But
looking in the details gives us also some disillusioning findings.

The sub index for the export orders fell significantly. Therefore, China’s economy will not be able to decouple from a cooling world economy in the upcoming months. Compensatory effects might come from the central bank and the government.

On balance, China will not tie in with the strong growth rates in the last couple of years - on the other hand a massive decline of the economy is off the table.

China’s official Manufacturing PMI - Audiocast (MP3, 1184 KB)

The Chinese GDP increased in the 4th quarter 2011 by 8.9% (Y-Y); in the 3rd quarter the GDP showed still a reading of 9.1% (Y-Y). In a quarter on quarter comparison the GDP increased by 2.0%. In the entire year 2011 the GDP increased by 9.3% (2010: 10.4%).

The first time since the second quarter 2009 GDP growth rates fell below 9%. In our view China has to get used to a reading below 9%. Recently published economic figures indicate that China is not able to decouple from a cooling world economy. Moreover, recently published weak import data show a declining domestic demand. A further weakening of GDP growth figures is on the agenda.

The People Bank of China is likely to react with a further monetary easing. In addition the government could step in by providing a stimulus package. Although growth rates could fall in the direction of 8.0%, the risk of a considerable downturn is not likely.

China’s GDP growth 2011 - Audiocast (MP3, 1486 KB)