It wasn’t all bad news in China to start the new week.
Although stocks suffered as concerns mounted about the economic (and social) toll of the Shanghai lockdowns, credit data for March was much stronger than expected.
New yuan loans were 3.13 trillion last month (figure below), easily ahead of consensus and topping the highest estimate from nearly two-dozen economists.
Aggregate financing, at 4.65 trillion yuan, beat by more than a trillion, and also topped the highest guess.
The data comes as officials struggle with the usual set of competing priorities. Efforts to rein in speculation and excess in the property sector last year dead ended in a mini-crisis that crippled momentum, while Xi’s regulatory crackdown became a case study in mission creep, to the detriment of investor sentiment. Once “anti-monopoly” turned into “common prosperity,” all bets were off. Within a year, many investors gave up on Chinese equities. The word “uninvestable” was bandied about.
The PBoC pivoted to easing in November, but it’s been a slow drip, not a wide open spigot. Market participants are looking for a rate cut as soon as this week. COVID protocol in Shanghai bodes ill for the Party’s growth targets, to say nothing of the property crackdown, the effects of which will surely linger.
Notwithstanding questionably robust activity data released last month, domestic demand is a concern. Sweeping virus containment measures covering tens of millions of consumers don’t help. Thankfully, consumer prices are subdued in China compared to developed nations.
Data out Wednesday showed CPI rose 1.5% in March (figure below), a bit hotter than estimates, and far enough above the previous two months’ sub-1% prints to garner a few alarmist headlines, but still very low relatively speaking.
Prices for fresh vegetables rose more than 17%, and transportation fuel costs more than 24%. But the headline print is nowhere near high enough to give the PBoC pause when it comes to supporting growth.
Factory-gate inflation slowed again in March, to “just” 8.3%. That was ahead of estimates and near the top end of the range but, again, it could’ve been worse.
Although generic media takes were keen to play up the impact of oil prices on the PPI “beat,” while blaming lockdown-related disruptions for “hotter-than-expected” CPI, the former is cooling, and the latter low. “Aside from China’s very weak domestic demand, the benign CPI is also congruent with the surprisingly limited supply side pressure indicated in the Caixin PMIs,” Bloomberg’s Simon Flint remarked.
As ever, Rabobank’s Michael Every had the most colorful take. “It’s amazing what price controls and a policy of deliberate over-supply can do,” he said, of Chinese consumer prices. On steadily cooling factory-gate inflation (March was the fifth consecutive monthly decline on the YoY print) Every wrote that “it’s amazing what price controls and going all-in on cheap coal can do.”
and the Chinese gain from the war in Ukraine by buying oil at heavily discounted prices from the Russians.
Hello, Dean. That’s true. But the Chinese have multiple priorities, needs, and aspirations, and they seem confused – as if they have too many spinning plates and they’re uncertain as to which ones present more importance. If the Chinese didn’t have some useless affection for a certain Russian Jackass, they could have it both ways by taking Russian oil and gas and decrying Putin’s murderous invasion. I think the challenges for the Chinese in this moment may be influenced by a certain amount of hubris about their ability to manage their own affairs, even in light of the property debacle that continues to eat away at their economic undersides.
Last week I asked a friend from Shanghai how her family back home was faring. An interesting take:
“I spoke with my mother and brothers: they are all locked down in their separate
homes.
Chinese have been trained to be docile, they seem to be quite resigned to the
fact they might be restrained at home for a period of time. The lockdown came at
a very short notice for my brother in downtown Shanghai.
They are calm which helps to reduce my level of nervousness.”