The good news is, the Chinese economy expanded more quickly than anticipated in Q1, if you believe the Party line.
The bad news is, domestic demand — the locus of concern for investors and economists — remained tepid in March.
Those were the two main takeaways from key data out of Beijing on Tuesday.
The headline Q1 GDP print was 5.3%, meaningfully better than the 4.8% consensus expected, and quicker than Q4’s pace.
The NBS will suggest China’s off to a good start vis-à-vis this year’s growth target.
There are too many caveats to list, not least of which is that we’re talking about an economy that’s flirting with deflation. So, China’s growth figures are even less amenable to straightforward interpretation these days than usual.
Retail sales data for March, released concurrent with the GDP figures, was very poor. I called it “tepid” above. That was me being generous. Consensus expected 4.8% from the spending update. Instead, China said retail sales rose a mere 3.1% last month.
At a time when market participants are very worried about the Chinese consumer and the read-through of lackluster domestic demand for the country’s worsening overcapacity problem, the big retail sales miss counted as yet another red flag.
Industrial output wasn’t much better. The 4.5% increase reported by the NBS on Tuesday was well short of the 6% consensus. It’s also worth noting that new property sales from January through March were down nearly 31% from the same period a year ago.
Tuesday’s GDP release and activity figures followed a string of data disappointments last week, including a larger-than-expected decline in shipments abroad, a surprise drop in imports and another moribund read on consumer price growth, which flatlined in March after a brief, holiday-inspired pickup.
Separately (but relatedly) credit growth was slower than analysts anticipated last month. New yuan loans were 3.1 trillion, well below the 3.6 trillion consensus.
Do note: The YoY growth rate for the stock of CNY bank loans was just 9.2% in March, the slowest in nearly two decades. The same metric for the total stock of credit (i.e., aggregate financing) was even slower, at 8.7%, likewise a record low.
Needless to say, those statistics don’t say much for domestic demand, particularly given that March is usually a decent seasonal for credit creation.
Between flat CPI, the unexpected drop in imports, subdued credit creation and, as of Tuesday, a woeful miss on retail sales, the writing’s on the wall: China needs fiscal stimulus. The PBoC can’t fix this. The problem isn’t the price of credit, the problem’s demand for credit. Or, more to the point, a lack thereof.
” the writing’s on the wall: China needs fiscal stimulus.” so in your opinion how feasible is fiscal stimulus? and why in your opinion isnt fiscal stimulus applied?
Part of it (most of it) is probably just an aversion to “kitchen sink”-style stimulus/”helicopter money,” and maybe they’re concerned about issuing more debt given the markets’/ratings agencies’ tendency to view local government debt as de facto general public debt.
Local governments are obviously over-leveraged. The saving grace is that the federal government isn’t. But a lot of China “doom” narratives don’t distinguish between the two given that the Party would have to bail out LGFVs in a pinch. Maybe the Party doesn’t want to push the envelope any further by borrowing more at the federal level, particularly given that the denominator in the debt-to-GDP calculus isn’t growing as fast as it used to.
But frankly, I don’t know why they aren’t doing more on the fiscal side. The government pushed back on the Fitch outlook cut by saying, basically, “Look, borrowing to boost domestic demand is credit positive, not negative,” so they clearly get it. And fiscal stimulus to boost consumption (or to step in as “spender of last resort”) is a much better option than what they’ve done in the past (e.g., building ghost cities and literal bridges to nowhere), particularly at this point in the country’s economic development.
At the end of the day, I think the Party may be scared of the stigma associated with “helicopter money,” but more generally, I think they’re kind of paralyzed. Here’s this massive economy trying to complete a transition from a smokestack model to a consumption-led model, and also trying to move up the value chain, and you have gale-force geopolitical headwinds to contend with, a tech revolution (AI) to stay abreast of, a property bubble where the cure (curbs and “red lines”) turned out to be worse than the disease (overbuilding and speculation), and just on and on and on.
That’s a lot to manage, and it probably doesn’t help that the guy in charge is increasingly uninterested in anybody’s opinion besides the 50-years-dead dictator who speaks to him from beyond the grave.
Fitch cut outlook for China state banks from stable to negative, following similar outlook cut for China’s sovereign rating. Surprising to me.
Given the magnitude of the real estate bubble in China and the inescapable reality of the country’s demographic problem, this is looking pretty, pretty bad.