Almost as a rule, markets are suspicious of China’s official economic data.
There’s a fairly straightforward rationale for that skepticism: Sometimes, it seems as though Beijing is just making the numbers up, although there’s no way to know.
I’d say the situation is improving over time as the Chinese economy matures, but that wouldn’t be true. Anecdotally, investors are just as leery of the data today as they were a decade ago.
Typically, I cover China’s monthly activity data as soon as it’s released, but I hesitated on Tuesday because the numbers were too good to be true. Complicating interpretation was the January-February rollup.
Retail sales, a source of considerable consternation, managed to double estimates (and then some), rising 6.7% against expectations for a 3% increase (figure below). No economist out of two-dozen surveyed predicted a print better than 5.5%.
Industrial output nearly doubled consensus as well, printing a 7.5% YoY gain versus the 4% growth economists expected. Fixed investment rose more than 12%, three full percentage points better than the highest forecast.
The Chinese economy came into 2022 staring down myriad headwinds. Xi’s regulatory crackdown and accompanying societal overhaul weighed on growth, especially in the property sector, where curbs threatened to sink the economy late last year, compelling the PBoC to pivot dovish after maintaining a neutral stance for most of the pandemic.
You could argue RRR cuts and reductions to the loan prime rate helped bolster the economy to start 2022, but it’d be a stretch to suggest China’s notoriously convoluted and, at times, very inefficient, monetary policy transmission channel is suddenly functioning so well that all it took was a few tweaks to turn the Titanic.
Chinese equities weren’t amused on Tuesday when the PBoC refrained from cutting the MLF rate as many market watchers expected (figure below).
Some suggested the better-than-expected data gave policymakers an excuse to hold off, but it’s also possible the central bank wants to avoid a scenario where the policy divergence with the Fed is widening from both ends. Jerome Powell is set to hike rates Wednesday and this is a delicate juncture for China.
Whatever the case, markets wanted another reduction to set up a third LPR cut in four months. No such luck. The absence of more easing contributed to the rout in Chinese equities.
I don’t see much utility in editorializing any further around China’s January-February activity data. Even if you aren’t suspicious of the numbers, it scarcely matters: New lockdowns are guaranteed to weigh on the economy in March and the surge in commodity prices will have an impact too.
As the NBS itself put it on Tuesday, the “external environment is still complex and grim, with many risks and challenges.”
Thank you for impartial comments.
Not unlike US economic reports, China and the EU can surprise. We make revisions over time, as perspective evolves. But I really do not envy China’s position in regard to Russia/Ukraine, having to tolerate the big, smelly Russian bear that wants to lean on their country for moral (more accurately, immoral) support. And President Xi does not exactly seem to be finding a comfortable balance in relationship to western capitalists or his own version of capitalism. I’ve said before that President Xi should tell Putin to go to hell. But more realistically, today Xi would be well-advised to tell Putin he must stand on his own. China cannot be his crutch. It’s just a fact, not a judgement.