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CIMB - China’s macro snapshot

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CIMB - China’s macro snapshot Powered By Docstoc
					August 31, 2012




                  REGIONAL




        MALAYSIA

       SINGAPORE
                                            ECONOMIC UPDATE
        INDONESIA

        THAILAND

       PHILIPPINES

 CHINA, HONG KONG




       CIMB Analyst                          China’s macro snapshot
                                             Macro data in the past month points to an economy that has probably
                                             floored but yet has failed to gain much momentum. Nevertheless, we
                                             believe the worst is likely over and foresee stronger growth in 2H12,
                                             when the lagged effects of monetary and a stronger fiscal impulse filter
                                             through to the economy. Our sights are now trained on upticks in
                                             investment approvals. Rising food prices are beginning to be a concern,
 Song Seng Wun                               although on balance, we believe falling producer prices and food
 T (65) 62108602
 E sengwun.song@cimb.com                     stockpiles can contain inflation.
 Ching Quan Jian
 T (65) 62108694
 E quanjian.ching@cimb.com                     Figure 1: Food stockpiles in the past six months should help to cushion price
                                               inflation
                                                Imports: Wheat (6M cum rolling, m ton)

                                                5

                                                5

                                                4

                                                4

                                                3

                                                3

                                                2

                                                2

                                                1

                                                1

                                                0
                                                 Jan-05             Jan-06               Jan-07         Jan-08           Jan-09               Jan-10             Jan-11        Jan-12

                                                                                                                                                                        SOURCES: CIMB, CEIC



                                               Figure 2: Investment funding is improving
                                                FAI, %y oy , 3MMA                    Budget for New Projects      Budget for Ex isting Projects        Capital Supply
                                                120


                                                100


                                                 80


                                                 60


                                                 40


                                                 20


                                                    0


                                                 -20


                                                 -40
                                                    Jan-05           Jan-06               Jan-07         Jan-08           Jan-09              Jan-10             Jan-11         Jan-12

                                                                                                                                                                        SOURCES: CIMB, CEIC




IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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ECONOMIC UPDATE
August 31, 2012




                  China’s economy fails to gain momentum but
                  cyclical rebound in 2H12 is still likely
                  Macro data in the past month points to an economy that has probably floored
                  but yet has failed to gain much momentum. Expansion in the near term
                  appears to be capped by poor industrial demand domestically and sluggish G3
                  growth externally. We do not foresee a strong rebound in exports in 2H12,
                  going by major leading indicators, and continue to pencil in growth of 5% for
                  3Q12 and a stronger 9% for 4Q12 (less demanding base). Real retail demand,
                  cushioned by steady wage increases and lower inflation, remains steady despite
                  lower consumer confidence.
                  The bright spot in Jul’s data was a pick-up in investment capital budgets, as
                  credit conditions improved and investment approvals accelerated, following
                  calls by the central government and monetary easing by the PBoC.
                  On balance, risks to our 8% GDP growth forecast are skewed to the downside.
                  The current momentum points to growth of 7.5-7.8% in 3Q12 (CIMB estimate:
                  8.1% in 3Q12; 8.3% in 4Q12), for full-year growth of around 7.8%. While the
                  initial pick-up in momentum may be rather slow, we expect an overall stronger
                  2H12, with growth to be led by more abundant liquidity and targeted fiscal and
                  monetary measures.
                  Yes, we are expecting more decisive action from the government should growth
                  stay tepid. Beijing, we believe, has plenty of ammunition left. Food and
                  property price inflation may complicate policy-making but overall, inflationary
                  pressures are easing on weaker input costs and below-trend growth. Property
                  worries will also likely be tackled in a more “acupunctural manner”, with
                  administrative measures rather than further monetary adjustments. As such,
                  we continue to expect two more RRR cuts and 1-2 more interest-rate cuts to
                  support investment this year. Added firepower may come from a stronger fiscal
                  impulse. Government spending will likely be back-loaded in 2H12, considering
                  that 1H12’s annualised budget remained in surplus vs. an original budget deficit
                  forecast of 1.5% of GDP (Rmb800bn; with another Rmb270bn if needed from a
                  stabilisation adjustment fund).

                   Figure 3: Key economic indicators
                                                             Jan-12   Feb-12   Mar-12    Apr-12     May-12   Jun-12   Jul-12   Aug-12
                    Urban fixed assets investment   % YTD      21.5     21.5    20.9       20.2       20.1     20.4     20.4     20.3
                    Industrial output               % yoy       1.5     21.3    11.9        9.3        9.6      9.5      9.2      9.2
                    PMI manufacturing                Index     50.5     51.0    53.1       53.3       50.4     50.2     50.1     50.0
                    Retail sales value              % yoy      14.7     14.7    15.2       14.1       13.8     13.7     13.1     13.0
                    Exports (US$)                   % yoy      -0.5     18.4     8.8        4.9       15.3     11.3      1.0      4.0
                    Imports (US$)                   % yoy     -15.3     39.9     5.2        0.2       13.1      6.3      4.7      5.4
                    Trade balance                   US$bn      27.2    -31.9     5.3       18.6       18.1     31.7     25.1     16.4
                    CPI                             % yoy       4.5      3.2     3.6        3.4        3.0      2.2      1.8      2.0
                    New Loans                       Rmb bn    738.1    710.7   1,011.4    681.8      793.2    919.8    540.1    550.0
                    Money supply (M2)               % yoy      12.4     13.0    13.4       12.8       13.2     13.6     13.9     14.1
                                                                                                  SOURCES: CIMB, CEIC, BLOOMBERG




                                                2
ECONOMIC UPDATE
August 31, 2012




                  Key monthly macro indicators
                  1) Activity and business indicators
                  Disappointingly, industrial output growth remains sluggish, pulled down by
                  soft heavy industrial production, weak external demand and slowing domestic
                  construction. While industrial production likely bottomed in 2Q, poor demand,
                  (weak PMI orders) could keep a lid on future expansion. On a positive note,
                  rising FAI approvals and an improvement in FAI capital budget should start
                  supporting the economy in the not-too-distant future. Business margins also
                  seem to be improving, suggesting cheaper inputs. We expect IP to rise 9.2% in
                  Aug (9.2% in Jul) with the PMI staying at 50 (50.1 in Jul). FAI is expected to
                  grow at 20% yoy in Aug (20.4% yoy in Jul).

                   Figure 4: Although IP was stable in Jul, its failure to gain momentum disappointed
                    Index                                                 CFLP PMI                              MNI Business Condition                           %y oy , 3MMA
                                                                          HSBC PMI                              Av erage
                                                                          IPI (RHS)
                    80                                                                                                                                                          25

                    75

                    70                                                                                                                                                          20

                    65

                    60                                                                                                                                                          15

                    55

                    50                                                                                                                                                          10

                    45

                    40                                                                                                                                                          5

                    35

                    30                                                                                                                                                          0
                      Jan-05      Jul-05   Jan-06    Jul-06    Jan-07    Jul-07   Jan-08    Jul-08   Jan-09    Jul-09   Jan-10    Jul-10   Jan-11    Jul-11   Jan-12   Jul-12

                                                                                                                 SOURCES: CIMB, BLOOMBERG, CEIC, MNI



                   Figure 5: On a positive note, the capital budget improved, though this has yet failed
                   to translate into stronger production due to the lead time between approvals and
                   “ground-breaking”
                    FAI, %y oy , 3MMA                         Budget for New Projects        Budget for Ex isting Projects        Capital Supply
                    120


                    100


                     80


                     60


                     40


                     20


                         0


                    -20


                    -40
                         Jan-05             Jan-06              Jan-07             Jan-08            Jan-09              Jan-10             Jan-11            Jan-12

                                                                                                                                                   SOURCES: CIMB, CEIC




                                                      3
ECONOMIC UPDATE
August 31, 2012




  Figure 6: Industrial indicators suggest that growth deceleration                                                              Figure 7: …and electricity consumption probably floored in
  has peaked in 2Q12. Industrial production…                                                                                    2Q12
   %y oy , 3MMA                       IP         Light Industries            Heav y industries                                   %y oy , 3MMA                    Electricity Consumption                     Light Industries
                                                                                                                                                                       Title:
                                                                                                                                                                 Heav y Industries
   30                                                                                                                                                                    Source:
                                                                                                                                  30

                                                                                                                                                                         Please fill in the values above to have them entered in your report
   25                                                                                                                             20


                                                                                                                                  10
   20

                                                                                                                                  0
   15
                                                                                                                                 -10

   10
                                                                                                                                 -20

    5
                                                                                                                                 -30
                                                                                                                                   Jan-06           Jan-07          Jan-08                 Jan-09            Jan-10             Jan-11         Jan-12
    0
     Jan-07      Jul-07   Jan-08   Jul-08    Jan-09   Jul-09    Jan-10       Jul-10    Jan-11    Jul-11   Jan-12   Jul-12


                                                                                            SOURCES: CIMB, CEIC                                                                                                               SOURCES: CIMB, CEIC



  Figure 8: But disappointingly, there was no pick-up in growth,                                                                Figure 9: Raw material production is constrained…
  going by Jul’s data.
   IP, %y oy ,                 Metals Smelting & Pressing                    Comms, Computer & Electronics                       IP, %y oy , 3MMA            Crude Oil            Cement            Copper             Aluminium           Steel
                               Petroleum & Gas                               Tex tile                                                                                    Title:
     3MMA
                                                                                                                                  60                                     Source:
   30

                                                                                                                                  50                                     Please fill in the values above to have them entered in your report
   25
                                                                                                                                  40
   20
                                                                                                                                  30
   15
                                                                                                                                  20
   10
                                                                                                                                  10

    5
                                                                                                                                  0

    0                                                                                                                            -10

   -5                                                                                                                            -20
        Jan-07   Jul-07   Jan-08   Jul-08    Jan-09   Jul-09    Jan-10        Jul-10   Jan-11    Jul-11   Jan-12   Jul-12              Jan-08   Jul-08    Jan-09         Jul-09      Jan-10         Jul-10      Jan-11        Jul-11      Jan-12   Jul-12

                                                                                            SOURCES: CIMB, CEIC                                                                                                               SOURCES: CIMB, CEIC



  Figure 10: …by weak demand, which is showing up in                                                                            Figure 11: …prices are still weakening
  inventories…
   Shanghai Futures Inv entories             Copper         Aluminium              Steel                                                                                   Copper              Aluminium              Steel
                                                                                                                                 Metal Prices (Index 2005=100)           Title:
   Index (2009=100), 3-day MA                                                                                                               30-day MA
    700
                                                                                                                                                                         Source:
                                                                                                                                 240

   600                                                                                                                           220                                     Please fill in the values above to have them entered in your report

                                                                                                                                 200
   500
                                                                                                                                 180
   400
                                                                                                                                 160
   300
                                                                                                                                 140
   200
                                                                                                                                 120
   100
                                                                                                                                 100

        0                                                                                                                         80

   -100                                                                                                                           60
        Jan-09        Jul-09        Jan-10        Jul-10            Jan-11         Jul-11        Jan-12        Jul-12              Jan-05        Jan-06         Jan-07            Jan-08        Jan-09          Jan-10           Jan-11        Jan-12

                                                                              SOURCES: CIMB, BLOOMBERG                                                                                                                        SOURCES: CIMB, CEIC




                                                                                                                            4
ECONOMIC UPDATE
August 31, 2012




  Figure 12: On balance, growth of around 7.5-7.8% in 3Q12 can                                                Figure 13: …led by stronger services FAI
  still be sustained. Investment is starting to stir again…

   %y oy , 3MMA                            FAI: Nominal         Real                                           %y oy , 3MMA                               FAI: Industrial Sector             Serv ices Sector
                                                                                                                                                        Title:
   50
                                                                                                               50                                       Source:

   45                                                                                                          45                                       Please fill in the values above to have them entered in your report

   40                                                                                                          40

   35                                                                                                          35

   30                                                                                                          30


   25                                                                                                          25


   20                                                                                                          20


   15                                                                                                          15


   10                                                                                                          10

    Jan-05        Jan-06    Jan-07       Jan-08        Jan-09          Jan-10        Jan-11      Jan-12          Jan-04       Jan-05        Jan-06       Jan-07          Jan-08       Jan-09         Jan-10       Jan-11   Jan-12


                                                                                SOURCES: CIMB, CEIC                                                                                                      SOURCES: CIMB, CEIC



  Figure 14: Infrastructure FAIs is picking up as well…                                                       Figure 15: …as government spending gathers pace
   FAI, %y oy , 3MMA        Mfg                                        Real Estate                             %y oy , 3MMA                                         FAI: SOEs               Others
                            Transport, Storage & Postal Sv cs          Utilities                                                                        Title:
   80                                                                                                           60                                      Source:

                                                                                                                                                        Please fill in the values above to have them entered in your report
                                                                                                                50
   60

                                                                                                                40

   40
                                                                                                                30


                                                                                                                20
   20

                                                                                                                10

    0
                                                                                                                 0


   -20                                                                                                         -10
        Jan-05    Jan-06    Jan-07        Jan-08       Jan-09          Jan-10        Jan-11      Jan-12             Jan-05        Jan-06       Jan-07           Jan-08            Jan-09       Jan-10           Jan-11     Jan-12

                                                                                SOURCES: CIMB, CEIC                                                                                                      SOURCES: CIMB, CEIC



  Figure 16: Conditions for funding have improved                                                             Figure 17: Business margins are also improving
   FAI, %y oy , 3MMA        Budget for New Projects              Budget for Ex isting Projects                 Industrial Firms                      Rev enue             COGS             Profit Margin (RHS)                %, 3MMA
                            Capital Supply                                                                                                              Title:
                                                                                                                %y oy , 3MMA
   120                                                                                                                                                  Source:
                                                                                                                50                                                                                                                   7

   100                                                                                                                                                  Please fill in the values above to have them entered in your report
                                                                                                                40
    80
                                                                                                                                                                                                                                     6

    60                                                                                                          30


    40                                                                                                          20                                                                                                                   5

    20
                                                                                                                10
        0                                                                                                                                                                                                                            4
                                                                                                                 0
   -20

   -40                                                                                                         -10                                                                                                                   3
         Jan-05    Jan-06    Jan-07       Jan-08       Jan-09          Jan-10        Jan-11      Jan-12             Jan-00         Jan-02            Jan-04              Jan-06            Jan-08             Jan-10        Jan-12

                                                                                SOURCES: CIMB, CEIC                                                                                                      SOURCES: CIMB, CEIC




                                                                                                          5
ECONOMIC UPDATE
August 31, 2012




                  2) External-sector indicators
                  Export growth may not recover so soon, considering weak G3 demand and
                  weak PMI New Orders. Export growth to the G3 eased from +3.7% yoy in Jun
                  to -7.3% in Jul, led by considerably weaker demand from Europe (-13.5% yoy).
                  Ex-G3, export growth is generally still healthy, expanding 7.6% in Jul.
                  Further weakness in 3Q12 is to be expected, with a high year-ago base (20.6%
                  yoy in 3Q11) likely to drag yoy growth to 5% in 3Q12. We expect export growth
                  to pick up to 4% yoy in Aug (1% in Jul), with import growth of 5.4% yoy
                  (4.7% in Jul). This would culminate in a surplus of US$16.4bn for the month,
                  down from Jul’s US$25.1bn.

                   Figure 18: Yoy, export growth remains challenging…
                    %y oy , 3MMA                                                       Ex ports       Imports

                     80



                     60



                     40



                     20


                      0



                    -20



                    -40
                         Jan-94      Jan-96        Jan-98        Jan-00        Jan-02             Jan-04            Jan-06      Jan-08       Jan-10             Jan-12

                                                                                                                                         SOURCES: CIMB, CEIC



                   Figure 19: …with leading indicators pointing to a further weakening in 2H12
                    Index 3MMA (4,6-mth lead)                    Ex ports (RHS)                                Processed Imports (RHS)            3MMA %y oy , 2-mth lead
                                                                 PMI New Ex ports Orders                       US ISM New Orders
                    70                                                                                                                                                   60

                    65

                    60                                                                                                                                                   40

                    55

                    50                                                                                                                                                   20

                    45

                    40                                                                                                                                                   0

                    35

                    30                                                                                                                                                   -20

                    25

                    20                                                                                                                                                   -40
                          Jan-07   Jul-07     Jan-08    Jul-08     Jan-09     Jul-09       Jan-10          Jul-10     Jan-11    Jul-11   Jan-12        Jul-12

                                                                                                                      SOURCES: CIMB, BLOOMBERG, CEIC




                                                  6
ECONOMIC UPDATE
August 31, 2012




  Figure 20: Freight rates suggest slightly brisker activities                                                                     Figure 21: …as China enters the seasonally busier half of the
  mom…                                                                                                                             year
   %mom                         Ex ports (LHS)       Shanghai Containerised Ex port Freight Index                 %mom              US$ bn, 3M-rolling                                       Total Trade
                                                                                                                                                                               Title:
   60                                                                                                                    30
                                                                                                                                    1,100                                      Source:
   50
                                                                                                                         25
                                                                                                                                    1,000                                      Please fill in the values above to have them entered in your report
   40
                                                                                                                         20           900
   30
                                                                                                                         15           800
   20
                                                                                                                                      700
   10                                                                                                                    10
                                                                                                                                      600
    0
                                                                                                                         5
   -10                                                                                                                                500
                                                                                                                         0
   -20                                                                                                                                400

                                                                                                                         -5           300
   -30

   -40                                                                                                                   -10          200
          Jan-11      Mar-11   May -11   Jul-11    Sep-11    Nov -11     Jan-12    Mar-12    May -12   Jul-12                              Jan-05       Jan-06         Jan-07        Jan-08         Jan-09          Jan-10        Jan-11            Jan-12

                                                                SOURCES: CIMB, BLOOMBERG, CEIC                                                                                                                               SOURCES: CIMB, CEIC



  Figure 22: Yoy comparison will, however, be tepid as growth in                                                                   Figure 23: Demand for key mechanical and electronic products
  the G3 stalls                                                                                                                    is moderating
   Ex ports, US$ bn,                        Asia       US          EU             G3                                                 Key Ex ports                         Mechanical & Electrical                   Tech
                                                                                                                                                                            Title:
                                                                                                                                                                          Clothing                                  Footw ear
         3M-rolling                                                                                                                 (%y oy , 3MMA)
                                                                                                                                                                               Source:
   275                                                                                                                               80

   250                                                                                                                               70                                        Please fill in the values above to have them entered in your report

   225                                                                                                                               60

                                                                                                                                     50
   200
                                                                                                                                     40
   175
                                                                                                                                     30
   150
                                                                                                                                     20
   125
                                                                                                                                     10
   100
                                                                                                                                      0
    75                                                                                                                              -10
    50                                                                                                                              -20

    25                                                                                                                              -30
         Jan-08       Jul-08   Jan-09     Jul-09    Jan-10      Jul-10      Jan-11     Jul-11      Jan-12       Jul-12                    Jan-02    Jan-03   Jan-04     Jan-05     Jan-06     Jan-07       Jan-08   Jan-09      Jan-10     Jan-11     Jan-12

                                                                                       SOURCES: CIMB, CEIC                                                                                                                   SOURCES: CIMB, CEIC



  Figure 24: Trade surpluses are rising…                                                                                           Figure 25: …driven by processing trades
   NX, US$ bn,                   Net Ex ports        US          EU           G3            Asia                                    US$ bn, 3M-rolling                         Ordinary Trade NX       Processed Trade NX
                                                                                                                                                                               Title:
    3M-rolling
                                                                                                                                    150                                        Source:
   125
                                                                                                                                                                               Please fill in the values above to have them entered in your report
                                                                                                                                    120
   100

                                                                                                                                     90
    75


    50                                                                                                                               60


    25                                                                                                                               30


     0                                                                                                                                0


   -25                                                                                                                               -30


   -50                                                                                                                               -60
         Jan-08       Jul-08   Jan-09     Jul-09    Jan-10      Jul-10      Jan-11     Jul-11      Jan-12       Jul-12                    Jan-05       Jan-06         Jan-07        Jan-08         Jan-09           Jan-10        Jan-11        Jan-12

                                                                                       SOURCES: CIMB, CEIC                                                                                                                   SOURCES: CIMB, CEIC




                                                                                                                               7
ECONOMIC UPDATE
August 31, 2012




  Figure 26: Import growth is stabilising                                                                                      Figure 27: Import volume is growing at twice the rate of value
                                                                                                                               growth
   %y oy , 3MMA                     Imports           Domestic-use          Processed                                           Commodity Imports (%y oy , 3MMA)                     Value         Volume
                                                                                                                                                                       Title:
   80                                                                                                                           120                                    Source:

                                                                                                                                100                                    Please fill in the values above to have them entered in your report
   60
                                                                                                                                 80

   40                                                                                                                            60

                                                                                                                                 40
   20
                                                                                                                                 20
    0
                                                                                                                                  0


   -20                                                                                                                           -20

                                                                                                                                 -40
   -40                                                                                                                                 Jan-09      Jul-09         Jan-10          Jul-10        Jan-11          Jul-11    Jan-12     Jul-12
     Jan-00           Jan-02        Jan-04            Jan-06            Jan-08            Jan-10            Jan-12               *includes agricultural products; rubber; cotton; metals; energy -related imports

                                                                                     SOURCES: CIMB, CEIC                                                                                                             SOURCES: CIMB, CEIC



  Figure 28: Slower energy imports                                                                                             Figure 29: Relatively stable iron ore imports
   Ton '000                             Crude Petroleum Oil             %y oy                                    %y oy          Ton '000                                    Iron Ore & Concentrate           %y oy                    %y oy
                                                                                                                                                                       Title:
   27,500                                                                                                            60         70,000                                 Source:                                                          100


   25,000                                                                                                            50                                                Please fill in the values above to have them entered 80 your report
                                                                                                                                                                                                                            in
                                                                                                                                60,000
                                                                                                                     40
   22,500                                                                                                                                                                                                                               60

                                                                                                                     30
                                                                                                                                50,000
   20,000                                                                                                                                                                                                                               40
                                                                                                                     20
   17,500                                                                                                                                                                                                                               20
                                                                                                                                40,000
                                                                                                                     10

   15,000                                                                                                                                                                                                                               0
                                                                                                                     0
                                                                                                                                30,000
   12,500                                                                                                            -10                                                                                                                -20


   10,000                                                                                                            -20        20,000                                                                                                  -40
            Jan-07         Jan-08        Jan-09                Jan-10            Jan-11            Jan-12                                 Jan-07         Jan-08             Jan-09            Jan-10            Jan-11      Jan-12

                                                                                     SOURCES: CIMB, CEIC                                                                                                             SOURCES: CIMB, CEIC



  Figure 30: …and copper imports                                                                                               Figure 31: Fairly strong soya bean imports
   Ton                                   Unw rought Copper & Product              %y oy                          %y oy          Ton '000                                         Soy beans           %y oy                            %y oy
                                                                                                                                                                       Title:
   600,000                                                                                                           200        6,500                                  Source:                                                          125

                                                                                                                     175        6,000
                                                                                                                                                                       Please fill in the values above to have them entered 100your report
                                                                                                                                                                                                                            in
   500,000                                                                                                           150        5,500

                                                                                                                                5,000                                                                                                   75
                                                                                                                     125
                                                                                                                                4,500
   400,000                                                                                                           100
                                                                                                                                                                                                                                        50
                                                                                                                                4,000
                                                                                                                     75
                                                                                                                                3,500
                                                                                                                                                                                                                                        25
   300,000                                                                                                           50
                                                                                                                                3,000
                                                                                                                     25                                                                                                                 0
                                                                                                                                2,500
   200,000                                                                                                           0          2,000
                                                                                                                                                                                                                                        -25
                                                                                                                     -25        1,500

   100,000                                                                                                           -50        1,000                                                                                                   -50
             Jan-07        Jan-08            Jan-09            Jan-10            Jan-11            Jan-12                               Jan-07          Jan-08             Jan-09            Jan-10             Jan-11      Jan-12

                                                                                     SOURCES: CIMB, CEIC                                                                                                             SOURCES: CIMB, CEIC




                                                                                                                           8
ECONOMIC UPDATE
August 31, 2012




                                                                                          3) Consumer indicators
                                                                                          Nominal retail spending has eased, reflecting weaker business and consumer
                                                                                          confidence. Real spending, though, has stabilised, amid slower price increases.
                                                                                          Sorting out the data last month, we see no reason to turn bearish on Chinese
                                                                                          consumers, in spite of weaker headline growth. Despite the doom and gloom in
                                                                                          news reporting, spending remains fairly robust, considering the cyclical
                                                                                          slowdown in China. Retail spending will likely remain supported by income
                                                                                          growth in both urban and rural areas.
                                                                                          We expect retail spending to grow by a stable 13% yoy in Aug (13.1% in Jul).
                                                                                          This is broadly in line with historical trends of around 1.8% mom growth in
                                                                                          Aug.

  Figure 32: Consumer confidence has weakened…                                                                                   Figure 33: …amid less buoyant employment
   Index                   Consumer Confidence Index              Satisfactory Index       Ex pectation Index                     Index                       CFLP PMI Employ ment            MNI Employ ment          Av erage
                                                                                                                                                                         Title:
   114                                                                                                                                                                   Source:
                                                                                                                                  75
   112
   110                                                                                                                                                                   Please fill in the values above to have them entered in your report
                                                                                                                                  70
   108
   106                                                                                                                            65

   104
   102                                                                                                                            60

   100
                                                                                                                                  55
    98
    96
                                                                                                                                  50
    94
    92                                                                                                                            45
    90
    88                                                                                                                            40
         Jan-08      Jul-08       Jan-09    Jul-09       Jan-10       Jul-10     Jan-11     Jul-11     Jan-12       Jul-12             Jan-08     Jul-08      Jan-09     Jul-09     Jan-10      Jul-10      Jan-11     Jul-11     Jan-12       Jul-12

                                                                                           SOURCES: CIMB, CEIC                                                                                                       SOURCES: CIMB, CEIC



  Figure 34: However, steady wage increases and falling prices                                                                   Figure 35: Spending on clothes, and electric and video
  have helped to prop up real sales                                                                                              appliances moderating
   %y oy , 3MMA                                 Retail Sales (Nominal)            Real                                            %y oy , 3MMA                 F&B, Tobacco & Liquor                     Clothes & Accessory
                                                                                                                                                                          Title:
                                                                                                                                                               Electric & Video Applicances
   24                                                                                                                             40                                     Source:

   22                                                                                                                             35                                     Please fill in the values above to have them entered in your report
   20                                                                                                                             30

   18
                                                                                                                                  25
   16
                                                                                                                                  20
   14
                                                                                                                                  15
   12
                                                                                                                                  10
   10
                                                                                                                                   5
    8

    6                                                                                                                              0

    4                                                                                                                              -5
    Jan-02        Jan-03      Jan-04   Jan-05   Jan-06     Jan-07      Jan-08    Jan-09   Jan-10     Jan-11     Jan-12              Jan-02      Jan-03     Jan-04   Jan-05   Jan-06    Jan-07    Jan-08     Jan-09   Jan-10     Jan-11     Jan-12

                                                                                           SOURCES: CIMB, CEIC                                                                                                       SOURCES: CIMB, CEIC




                                                                                                                             9
ECONOMIC UPDATE
August 31, 2012




  Figure 36: Housing-related spending and jewellery sales remain                                                                    Figure 37: Fairly stable auto sales
  fairly robust
   %y oy , 3MMA               Furniture                                       Gold, Silv er & Jew ellery                             Units '000                                  Auto Sales            %y oy , 3MMA (RHS)                  %y oy , 3MMA
                              Construction & Decoration Materials                                                                                                             Title:
                                                                                                                                     2,000                                                                                                              120
   80                                                                                                                                                                         Source:
                                                                                                                                     1,800
                                                                                                                                                                                                                                    100
                                                                                                                                                                              Please fill in the values above to have them entered in your report
   60                                                                                                                                1,600

                                                                                                                                     1,400                                                                                                              80
   40
                                                                                                                                     1,200
                                                                                                                                                                                                                                                        60
                                                                                                                                     1,000
   20
                                                                                                                                                                                                                                                        40
                                                                                                                                       800
    0                                                                                                                                  600                                                                                                              20

                                                                                                                                       400
   -20                                                                                                                                                                                                                                                  0
                                                                                                                                       200

   -40                                                                                                                                     0                                                                                                            -20
     Jan-02        Jan-03    Jan-04   Jan-05      Jan-06     Jan-07    Jan-08      Jan-09     Jan-10       Jan-11     Jan-12                Jan-02 Jan-03       Jan-04     Jan-05 Jan-06      Jan-07 Jan-08      Jan-09    Jan-10 Jan-11   Jan-12

                                                                                              SOURCES: CIMB, CEIC                                                                                                          SOURCES: CIMB, CEIC



  Figure 38: Mixed picture on discretionary spending…                                                                               Figure 39: …although it looks like the wealthy are generally still
                                                                                                                                    spending
   Imports (Kilograms, 3M-Rolling)                            Diamonds                                                               Imports (Unit '000, 3M-Rolling)                       Wrist Watches
                                                                                                                                                                              Title:
   1,200                                                                                                                             6,000                                    Source:

                                                                                                                                                                              Please fill in the values above to have them entered in your report
   1,000                                                                                                                             5,000


    800                                                                                                                              4,000


    600                                                                                                                              3,000


    400                                                                                                                              2,000



    200                                                                                                                              1,000


         0                                                                                                                                 0
          Jan-06            Jan-07         Jan-08            Jan-09            Jan-10          Jan-11               Jan-12                   Jan-08    Jul-08      Jan-09      Jul-09      Jan-10       Jul-10    Jan-11     Jul-11   Jan-12        Jul-12

                                                                                              SOURCES: CIMB, CEIC                                                                                                          SOURCES: CIMB, CEIC



  Figure 40: Households’ spending power has seemingly not                                                                           Figure 41: Still party time in China
  been affected
   Imports (Unit '000, 3M-Rolling)                         Air-Conditioners                                                          Litre mil, 3M-Rolling                                    Liquor
                                                                                                                                                                              Title:
   120                                                                                                                               160                                      Source:

                                                                                                                                     140                                      Please fill in the values above to have them entered in your report
   100
                                                                                                                                     120
    80
                                                                                                                                     100

    60                                                                                                                                80

                                                                                                                                      60
    40
                                                                                                                                      40
    20
                                                                                                                                      20

     0                                                                                                                                 0
         Jan-06         Jan-07           Jan-08             Jan-09            Jan-10          Jan-11            Jan-12                     Jan-08     Jul-08      Jan-09      Jul-09    Jan-10         Jul-10    Jan-11      Jul-11   Jan-12        Jul-12

                                                                                              SOURCES: CIMB, CEIC                                                                                                          SOURCES: CIMB, CEIC




                                                                                                                               10
ECONOMIC UPDATE
August 31, 2012




                                                                                          4) Property Indicators
  Figure 42: Prices are picking up again sequentially                                                                                 Figure 43: Yoy, prices have bottomed
   %mom                       70-cities Primary Residential PPI            70-cities Secondary Residential PPI                         %y oy , 3MMA                                  70-cities Primary Residential PPI
                                                                                                                                                                             Title:70-cities Secondary Residential PPI
   2.0                                                                                                                                 18                                    Source:

                                                                                                                                                                             Please fill in the values above to have them entered in your report
                                                                                                                                       15
   1.5

                                                                                                                                       12
   1.0

                                                                                                                                        9
   0.5
                                                                                                                                        6

   0.0
                                                                                                                                        3

   -0.5
                                                                                                                                        0


   -1.0                                                                                                                                 -3
         Jan-06         Jan-07          Jan-08          Jan-09             Jan-10         Jan-11          Jan-12                         Jan-06         Jan-07             Jan-08           Jan-09         Jan-10            Jan-11        Jan-12

                                                                                           SOURCES: CIMB, CEIC                                                                                                              SOURCES: CIMB, CEIC



  Figure 44: Starting to heat up again                                                                                                Figure 45: Sales prices are increasing
   No of cities, Primary Residential PPI         Increase     No change         Decline                                                %y oy , 3MMA (Rmb/sqm)                        Av erage Residential Sales Price
                                                                                                                                                                             Title:
   70                                                                                                                                   36                                   Source:

                                                                                                                                        30                                   Please fill in the values above to have them entered in your report
   60

                                                                                                                                        24
   50

                                                                                                                                        18
   40
                                                                                                                                        12
   30
                                                                                                                                         6

   20
                                                                                                                                         0

   10                                                                                                                                   -6


    0                                                                                                                                  -12
            Jan-11   Mar-11   May -11      Jul-11     Sep-11         Nov -11     Jan-12   Mar-12     May -12      Jul-12                    Jan-00       Jan-02             Jan-04            Jan-06          Jan-08             Jan-10       Jan-12

                                                                                           SOURCES: CIMB, CEIC                                                                                                              SOURCES: CIMB, CEIC



  Figure 46: While prices have floored, construction activities                                                                       Figure 47: …amid still-weak real-estate investment
  have yet to pick up…
   %y oy , 3MMA                            Floor Space Started                                             %y oy , 3MMA                %y oy , 3MMA                 Real Estate Inv estment                   Residential
                                           Floor Space Completed - 24 month lag (RHS)                                                                               Office Title:                             Commercial
   120                                                                                                                     60           80                                   Source:

                                                                                                                                                                             Please fill in the values above to have them entered in your report
   100                                                                                                                     50           60

    80                                                                                                                     40
                                                                                                                                        40

    60                                                                                                                     30
                                                                                                                                        20
    40                                                                                                                     20

                                                                                                                                         0
    20                                                                                                                     10

                                                                                                                                       -20
        0                                                                                                                  0


   -20                                                                                                                     -10         -40
        Jan-02          Jan-04          Jan-06              Jan-08             Jan-10       Jan-12             Jan-14                        Jan-04   Jan-05      Jan-06       Jan-07        Jan-08      Jan-09         Jan-10    Jan-11    Jan-12

                                                                                           SOURCES: CIMB, CEIC                                                                                                              SOURCES: CIMB, CEIC




                                                                                                                                 11
ECONOMIC UPDATE
August 31, 2012




                  5) Inflation indicators
                  Deflationary pressures building up in the economy will, to a certain extent, be
                  negated by rising food prices, as global supply disruptions jack up the price of
                  grain. However, we do not expect inflation to rebound strongly, considering
                  higher bases. Leading producer indices also point to a further weakening of
                  price pressures.
                  Rising wheat prices should also be partially compensated by falling meat prices
                  while previous stockpiling should help to rein in price increases. We expect
                  inflation to remain low in Aug, rising 2% yoy in Aug (1.8% in Jul).

                   Figure 48: Price pressures are easing…
                     %y oy , 3MMA                                  CPI        Food            Core (RHS)        Non-food (RHS)                        %y oy , 3MMA
                    24                                                                                                                                             4


                    20                                                                                                                                             3


                    16                                                                                                                                             2


                    12                                                                                                                                             1


                     8                                                                                                                                             0


                     4                                                                                                                                             -1


                     0                                                                                                                                             -2


                     -4                                                                                                                                            -3
                      Jan-00       Jan-01   Jan-02    Jan-03   Jan-04    Jan-05      Jan-06       Jan-07     Jan-08     Jan-09    Jan-10    Jan-11    Jan-12

                                                                                                                                         SOURCES: CIMB, CEIC



                   Figure 49: …leading producer indices all pointing south
                    %y oy , 3MMA                               Retail Price Index                          Corporate Goods Price Index                 %y oy , 3MMA
                                                               PPI                                         PuPI
                                                               Crude Import Price (RHS)
                     16                                                                                                                                        120


                     12
                                                                                                                                                               90

                      8
                                                                                                                                                               60

                      4
                                                                                                                                                               30
                      0

                                                                                                                                                               0
                     -4

                                                                                                                                                               -30
                     -8


                    -12                                                                                                                                        -60
                          Jan-00   Jan-01   Jan-02    Jan-03   Jan-04    Jan-05      Jan-06      Jan-07     Jan-08     Jan-09    Jan-10    Jan-11    Jan-12

                                                                                                                                         SOURCES: CIMB, CEIC




                                                 12
ECONOMIC UPDATE
August 31, 2012




  Figure 50: Consumer prices are rising at a slower pace                                                                           Figure 51: Key risk for food comes from higher grain prices
  nationwide
   %y oy , 3MMA                                          Urban           Rural                                                      %mom                               Food CPI           Agricultural Product Wholesale Prices
                                                                                                                                                                          Title:
   10                                                                                                                                6                                    Source:

                                                                                                                                     5                                    Please fill in the values above to have them entered in your report
    8
                                                                                                                                     4

                                                                                                                                     3
    6
                                                                                                                                     2

    4                                                                                                                                1

                                                                                                                                     0
    2
                                                                                                                                    -1

                                                                                                                                    -2
    0
                                                                                                                                    -3

   -2                                                                                                                               -4
    Jan-00        Jul-01      Jan-03           Jul-04      Jan-06         Jul-07       Jan-09          Jul-10     Jan-12                 Jan-10    Apr-10    Jul-10   Oct-10   Jan-11     Apr-11        Jul-11     Oct-11     Jan-12     Apr-12      Jul-12

                                                                                             SOURCES: CIMB, CEIC                                                                                                             SOURCES: CIMB, CEIC



  Figure 52: Slower meat price gains will mitigate some of the                                                                     Figure 53: Inflation is moderating in 2012 on both slower price
  pressure                                                                                                                         gains in food and residences
   %y oy , 3MMA             CPI: Meat, Poultry & other Products               Agricultural Product Price: Meat                      %pts contribution to CPI
                                                                                                                                                                          Title:
                                                                                                                                     7
   60                                                                                                                                                                     Source:
                                                                                                                                     6
   50                                                                                                                                                                     Please fill in the values above to have them entered in your report
                                                                                                                                     5
   40
                                                                                                                                     4
   30
                                                                                                                                     3

   20                                                                                                                                2

   10                                                                                                                                1

    0                                                                                                                                0

                                                                                                                                    -1
   -10
                                                                                                                                    -2
   -20
                                                                                                                                                   2008                 2009                     2010                       2011                    7M12
   -30                                                                                                                                            Food                  Cig & Liquor               Clothing                        Household Item
        Jan-02   Jan-03    Jan-04     Jan-05    Jan-06     Jan-07      Jan-08      Jan-09   Jan-10      Jan-11    Jan-12                          Medical               Transport & Comms          Recreation                      Residence

                                                                                             SOURCES: CIMB, CEIC                                                                                 SOURCES: CIMB, BLOOMBERG, CEIC



  Figure 54: Falling industrial prices will hopefully restore some                                                                 Figure 55: …as export prices ease
  export competitiveness…
   Index                            PMI Input Prices             MNI Input Prices           Av erage                                %y oy , 3MMA                           US Import Price Index (China Ex port Prices)
                                                                                                                                                                          Title:
   90                                                                                                                                6                                    Source:

                                                                                                                                     5                                    Please fill in the values above to have them entered in your report
   80
                                                                                                                                     4

   70                                                                                                                                3

                                                                                                                                     2
   60
                                                                                                                                     1
   50
                                                                                                                                     0

   40                                                                                                                               -1

                                                                                                                                    -2
   30
                                                                                                                                    -3

   20                                                                                                                               -4
        Jan-08    Jul-08     Jan-09       Jul-09        Jan-10       Jul-10      Jan-11      Jul-11      Jan-12      Jul-12          Jan-06              Jan-07       Jan-08            Jan-09            Jan-10             Jan-11            Jan-12

                                                                     SOURCES: CIMB, CEIC, BLOOMBERG                                                                                                                          SOURCES: CIMB, CEIC




                                                                                                                              13
ECONOMIC UPDATE
August 31, 2012




                  6) Monetary indicators
                  Lending data disappointed in Jul, with new loans of just Rmb540.1bn,
                  compared with a run rate of close to Rmb809bn in the past six months.
                  Nonetheless, taken in the context of traditionally weaker loan disbursements in
                  Jul, the new loans do not look all that bad. They are still very much in line with
                  full-year lending of Rmb8tr-8.5tr. Moreover, we were generally surprised by
                  the strength of bond fund-raising last month, which accounted for 24% of the
                  month’s total financing.
                  For Aug, we expect new loans of Rmb550bn, which usually account for 6-8% of
                  full-year lending. M2 growth is expected to accelerate to 14.1% yoy (13.9% in
                  Jul). We believe the scope remains for the PBoC to raise rates, although this is a
                  close call considering rising asset prices with rising food prices also a threat.
                  Much will depend on the health of future data and the degree to which banks
                  pass through discounts from wider interest-rate bands. No change to our
                  prediction of two more RRR cuts this year, with one still likely in 3Q12 given a
                  dearth of maturing OMO papers in 2H12, to support new loans of Rmb8tr and
                  M2 growth of 14% in 2012.

                   Figure 56: Loan growth has stabilised on better credit conditions
                    %y oy                                  Yuan Loans         Yuan Deposits         M2            LDR (RHS)                                 Ratio

                    35                                                                                                                                        85



                    30                                                                                                                                        80



                    25                                                                                                                                        75



                    20                                                                                                                                        70



                    15                                                                                                                                        65



                    10                                                                                                                                        60
                     Jan-01   Jan-02   Jan-03     Jan-04      Jan-05       Jan-06    Jan-07       Jan-08        Jan-09      Jan-10       Jan-11   Jan-12

                                                                                                                                     SOURCES: CIMB, CEIC



                   Figure 57: While new loans eased in a seasonally weaker Jul, bond fund-raising was
                   strong
                    Rmb bn                       LC Loans     FC Loans      Entrusted Loans     Trust Loans      BA      Bond   Equity
                    2,000

                    1,800

                    1,600

                    1,400

                    1,200

                    1,000

                     800

                     600

                     400

                     200

                         0
                              Jan-12            Feb-12            Mar-12               Apr-12                 May -12           Jun-12             Jul-12

                                                                                                                                     SOURCES: CIMB, CEIC




                                           14
ECONOMIC UPDATE
August 31, 2012




  Figure 58: Lending fell below expectations in Jul, but was quite                                                  Figure 59: Loans & claims on other FIs are rising
  strong when compared to previous years
   New Yuan Loans (Rmb bn)               Household: Short-term      HH: LT                                           %y oy , 3MMA                               Loans & Claims on other financial institutions
                                         Non-FI: ST                 Non-FI: Bill Financing                                                                      Title:
                                         Non-FI: Mid-Long Term
   2,000                                                                                                             35                                         Source:

                                                                                                                                                                Please fill in the values above to have them entered in your report
                                                                                                                     30
   1,500


                                                                                                                     25
   1,000

                                                                                                                     20

       500
                                                                                                                     15


         0
                                                                                                                     10



    -500                                                                                                              5
             Jan-09 May -09 Sep-09 Jan-10 May -10 Sep-10 Jan-11 May -11 Sep-11 Jan-12 May -12                             Jan-07   Jul-07   Jan-08     Jul-08     Jan-09      Jul-09     Jan-10     Jul-10    Jan-11   Jul-11   Jan-12   Jul-12

                                                                                       SOURCES: CIMB, CEIC                                                                                                         SOURCES: CIMB, CEIC



  Figure 60: The PBoC has refrained from cutting rates further                                                      Figure 61: Rising real rates, we believe, will provide the PBoC
                                                                                                                    with the room to manoeuvre if needed
   %                 1-Yr Lending Rate          1-Yr Deposit Rate          RRR - Major Banks (RHS)        %          Real %                                     1-Yr Lending Rate               1-Yr Deposit Rate
                                                                                                                                                                Title:
   8                                                                                                      24
                                                                                                                      8                                         Source:

   7                                                                                                                                                            Please fill in the values above to have them entered in your report
                                                                                                                      6
                                                                                                          20


   6                                                                                                                  4

                                                                                                          16
                                                                                                                      2
   5

                                                                                                          12          0
   4
                                                                                                                     -2
                                                                                                          8
   3
                                                                                                                     -4


   2                                                                                                      4          -6
   Jan-05          Jan-06      Jan-07         Jan-08       Jan-09        Jan-10        Jan-11    Jan-12               Jan-05           Jan-06        Jan-07          Jan-08            Jan-09        Jan-10         Jan-11      Jan-12

                                                                          SOURCES: CIMB, BLOOMBERG                                                                                                 SOURCES: CIMB, BLOOMBERG



  Figure 62: Interbank conditions have improved, but there is                                                       Figure 63: The PBoC has been injecting liquidity via reverse
  room for further improvements                                                                                     repos. Nonetheless, we expect further RRR cuts to improve
                                                                                                                    liquidity
   %                               3-month SHIBOR            7-day repo Rate (30-day av erage)                       OMO (Rmb bn)                                Bills     Repo        Rev erse Repo         Net
                                                                                                                                                                Title:
   7                                                                                                                  500                                       Source:

                                                                                                                      400                                       Please fill in the values above to have them entered in your report
   6
                                                                                                                      300

   5                                                                                                                  200

                                                                                                                      100
   4
                                                                                                                          0
   3
                                                                                                                     -100

   2                                                                                                                 -200

                                                                                                                     -300
   1
                                                                                                                     -400

   0                                                                                                                 -500
   Jan-05          Jan-06       Jan-07        Jan-08       Jan-09         Jan-10        Jan-11   Jan-12                       Jan-11        Apr-11       Jul-11          Oct-11           Jan-12         Apr-12        Jul-12      Oct-12

                                                                          SOURCES: CIMB, BLOOMBERG                                                                                                                 SOURCES: CIMB, CEIC




                                                                                                               15
ECONOMIC UPDATE
August 31, 2012




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ECONOMIC UPDATE
August 31, 2012




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