With yuan unable to sustain its PBOC-inspired squeeze higher and currency volatility at three-year highs, hopes remained high that some stability can be reasserted in China's macro-economic data tonight. Those hopes have been dashed.
However, policymakers face two challenges...
Internally, policymakers’ efforts to constrain the growth of shadow banking and reduce financial risks worked almost too well. Financial regulations introduced in 2017 and early 2018 led to a meaningful contraction in shadow banking, which slowed overall credit growth and tightened credit conditions, particularly for private companies.
And externally, the escalation in US tariffs raised questions about China’s export growth and damaged confidence in the economic outlook. As a result, our China Current Activity Indicator (CAI) has fallen nearly two percentage points from its 1H2018 average of over 7%."
And as Goldman's Andrew Tilton (Chief Asia Economist) warns
"There are reasons to be concerned [that easing is becoming less effective]. Local government officials who typically implement infrastructure spending and other forms of stimulus are facing conflicting pressures. The emphasis in recent years on reducing off-balance-sheet borrowing, selecting only higher-value projects, and eliminating corruption has made local officials more cautious. But at the same time, the authorities are now encouraging local officials to do more to support growth, like accelerate infrastructure projects. President Xi himself recently acknowledged the incentive problems and administrative burdens facing local officials."
So where did tonight's economic data deluge print?
- China Retail Sales YoY Big Miss +8.1% (vs +8.8% exp)
- China Industrial Production YoY Big Miss +5.4% (vs +5.9% exp)
- China Fixed Assets Investment YoY Beat +5.9% (vs +5.8% exp)
- China Property Investment YoY +9.7%
- China Surveyed Jobless Rate Fell to 4.8%
Retail sales growth is at its slowest since the peak of the crisis in Nov 2008 and industrial production is at its slowest since 2003...
And don't forget China's unsold car inventory is at a record high as car sales plunged for a sixth consecutive month, plummeting 18 percent in November, which would be the first annual decline since 1990 based on CAAM estimate.
It seems the crackdown on the shadow-banking system is hard to overcome it seems with even the most finely tuned hammer of monetary policy...
Albeit a stronger-than-estimate aggregate financing and new yuan loans released earlier this week, the slowdown of M1 money supply growth underscores worries over economy, which may prompt authorities to start doing more to support growth.
But, as a reminder, it is not like Chinese authorities have been sitting on their hands as the economy, currency, and stock markets slump. As we noted previously, they have aggressively loosened monetary and fiscal policies...
But as the Current Activity Indicator above shows, it's not working.
Economic data aside, Bloomberg's Ailing Tan points out one notable change from previous month's political environment is the ease of trade tensions, which more progress are now seen on China's end right after the talk with U.S. in Argentina:
Resume large purchase of U.S. soybeans after a drastic reduction this year
Delay ambitious program in tech industry, known as 'Made in China 2025'
Reduction of import duties on vehicles from U.S.
Stepping up punishments for IP thefts
As Bloomberg's Enda Curran notes, while the numbers reinforce what we already know, that the economy is under pressure, the soft numbers indicate that there's a way to go yet before growth turns a corner. It may be one reason why China is appearing to play ball in the trade talks...
And finally, before American investors crow that Trump's trade war is working and China's economy is suffering - the fact is that the US economic data is as dismal and disappointing as China's has been...