Opportunities among obstacles borne from China's November data

Editor's note: Wang Jianhui is general manager of research and development at Capital Securities. The article reflects the author's opinions and not necessarily the views of CGTN.

Among month by month data published this year, November deserves probably the greatest attention in terms of evaluating the economic performance in the current year and forecasting trends for the next. The data provides detailed information about the strength and weakness of the economy, as well as the shaping of future policy measures, since its' timing aptly coincides with the annual Central Economic Work Conference. Therefore, the data can be assessed across a wide range of area, including financial institutions, investment, and the property market, among others.

For the first 11 months of this year, total saving deposits in all financial institutions grew by 6.9 percent, down from 12.4 percent in the same period of last year. Deposit growth from household and non-financial companies slowed down from 14.9 percent and 5.2 percent to 10.4 percent and -2.4 percent, respectively. If we also consider the seven-day weighted-average interest rate, a key measure of market interest levels, which was lowered from 2.27 percent to 1.78 percent, we could draw a conclusion that the current relaxed monetary policies have shown positive effects, and some money has left the banking system possibly for the real economy. Monetary supply and loan data, however, need to be examined in greater detail. M2 (including cash in circulation, current deposits, and time deposits) increased by 7.1 percent compared with 10 percent last year. The lower growth seemed a little problematic if combined with M0 (cash in circulation), the basic source of credit creation power, which grew by 12.7 percent, up from 10.4 percent in the same period of last year. While M2 usually moves in the same direction as M0, the current situation could signal a weaker credit-generating ability than expected. This observation could be supported by the November loan data. The accumulated loan growth was 7.7 percent, down from 10.8 percent, and the share of loans in total social financing declined from 62.8 percent to 55.1 percent.

Accumulated fixed investments increased by 3.3 percent, down from 4.2 percent at the beginning of this year. This seemingly lukewarm score in fact bears more encouraging information, not only because it was up from 2.9 percent of last year, but has also witnessed improvement in the sub-divisions. Investment in the primary sector (farming, forestry, animal husbandry and fishery) edged up from -0.2 percent to 2.4 percent, indicating stronger supply and stable food price expectations. The secondary sector (mining, manufacturing, utilities, and construction) experienced investment growth by 12.0 percent, higher than the 9 percent of last year. It is noteworthy that private investment in the manufacturing area increased by 11.4 percent for the first 10 months of this year, 2.3 percentage points higher than that of last year. The published data could at least partially explain the “lost”deposits of the banks. The only under-performing area was investment in the tertiary sector (services), which dropped by 1.0 percent, continuing the trends downwards during the past 5 months. 

The property market continues to change, with the accumulated sales by floor areas down by 14.3 percent in November. Compared with the sales in the previous month and the beginning of the year, the drop narrowed by 1.5 and 6.2 percentage points, respectively. In the meantime, the market has shown signs of stabilization. The price index for new and existing homes was 93.93 and 91.46, inching up from 93.78 and 91.06 in the previous month. As the market continues to respond positively to a slew of major policy changes implemented during the third quarter, further recovery and growth can be expected in the future. 

Bearing the above observations in mind, we could better understand the major economic policy plans which were set forth in the Central Economic Work Conference. For instance, the government called for “moderately accommodating” monetary and “more proactive” fiscal policies, compared to  the "prudent” and “moderately supporting” ones, respectively, meaning that the real economy could have a greater volume of cheaper funds available while enjoying lower taxes and fees. As a result, the issue of credit creation would be directly addressed. The property industry was considered by the conference as a major source of systemic risk, and further supportive measures, such as lowering inventory with the help of local governments, have been promised. Therefore, it can be foreseen that China's economy will continue to develop, becoming even more vigorous in the year to come.

(Cover via CFP)