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Chinese Data Signals Continued Bottom

Chinese Data Signals Continued Bottom

New data released out of China Sunday pointed to a protracted bottoming of the world's fastest growing and second largest economy. Following recent manufacturing and service data, data released this weekend shows that the economy may not be improving as rapidly as hoped but has not deteriorated further following months of contraction in both the manufacturing and service sector.

Sunday, the National Bureau of Statistics reported that industrial production, a key leading indicator of growth, rose 10.1 percent in November from the same month a year ago, faster than economist expectations of a 9.8 percent rise and also better than October's reading of 9.6 percent. The rise in industrial production data is the third consecutive monthly rise which followed a four month bottoming process and points to better growth prospects in the future as industrial production tends to slightly lead, if not correlate nicely, with GDP growth.

However, trade data was not as strong as investors would have hoped. Exports only gained at a 2.9 percent annualized rate, much slower than the economist consensus forecast of a 9.0 percent expected rise. In addition, imports were exactly flat as compared to a year ago, also worse than the consensus forecast of a +2.0 percent reading. The total trade surplus for November fell to $19.63 billion, missing forecasts of a trade surplus of $26.85 billion. The weak trade data does not bode well for Q4 GDP however the Chinese trade data can be very seasonal and be altered by large one-time items, so next month's reading will be closely watched. Notably, iron ore imports, a key measure of raw material demand in China, rose 8.2 percent as compared to a year ago, which is a strong increase and bullish for the economy.

In addition, China reported fixed asset investment, retail sales, and inflation data Sunday, all of which further the bottoming thesis that many economists have held for some months now. The data included:

  • Fixed asset investment rose 20.7 percent vs. the same period a year ago, the same as the October reading and below economist estimates of a 20.9 percent rise.
  • Retail sales rose 14.9 percent in November as compared to the same period a year ago, better than economist expectations of a 14.6 percent rise and better than October's reading of a 14.5 percent gain.
  • CPI inflation rose 2.0 percent on annualized basis in November, faster than the previous 1.7 percent rate of inflation but below economist expectations of a 2.1 percent rate.
  • PPI inflation fell at a 2.2 percent rate as compared to a year ago in November, better than the prior reading of a 2.8 percent contraction but below the market's expectation of a 2.0 percent rate of decline.

Overall, the data is mixed and points to a continued bottoming of the Chinese economy. Recent data has not deteriorated further as it had over the spring and summer months, however the lack of improvement has and could continue to weigh on global economic growth. Chinese growth has been subdued due to weakness in the eurozone, its largest trading partner when taken as a collective economic block. Also, the slowdown in U.S. economy experienced over the last few months as corporate investment has slowed due to the Fiscal Cliff has weighed on China as the U.S. is its second largest trading partner.

Thursday night, the HSBC China Manufacturing PMI is set to be released and will shed further light on the state of China's manufacturing sector, its largest economic sector. Comments on trade will be key as trade has been the largest part of the Chinese economy to suffer in the recent downturn. Watch the iShares FTSE/Xinhua China 25 ETF (NYSE: FXI) and the price of copper as key market indicators of the health of the Chinese economy as well as the AUD/USD exchange rate.


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