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This report has been prepared by UBS Securities Asia Limited.ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN
ON PAGE 23.
Global Research 20 March 2018
China Economic Perspectives
China by the Numbers (March 2018)
Our guide to Chinese monthly data
What the numbers are, what they mean, and the outlook going forward:
What’s new
2018 NPC set this year's GDP growth target at '~6.5%' with a subtle de-
emphasis, initiated a restructure of its regulatory institutions including a
merger of CBRC and CIRC. $130 billion of new corporate & personal income
tax cuts were announced despite a 0.4% cut to the general budget deficit
target. The government's plan for 2018 will see more steel + coal capacity cuts,
slower credit growth, broadly stable debt/GDP, and sensible progress on its
new property tax legislation in 2018. New personnel announcements point to
broad continuity of key reforms and policy directions.
Jan-Feb activity surprised to the upside, led by a 24%y/y export jump,
rebound in property and infrastructure FAI, and solid set of retail sales. The
ongoing environment-related production cuts in northern China and tightening
of local government financing do not seem to have had as big of an impact on
IP as expected (+7.2%y/y).
New US tariffs point to an increasingly hawkish US trade policy stance,
especially for China. We expect the steel and aluminium tariffs to have a
limited macro impact, but more serious trade actions may be taken against
China within context of the USTR's Section 301 IP investigation, including
tariffs on Chinese electronics/tech (mainly cell phones, computers and related
parts). While not our baseline, we estimate a 10% tariff on all China's US
exports could see China's total real export/GDP growth slow 2ppt/0.3-0.4ppt.
What's next
Key headwinds for 2018 still intact. Despite Jan-Feb's strong headlines,
property sales and credit continued to slow given China's ongoing deleverage
campaign, pointing to moderating activities ahead. On balance, given usual
CNY seasonal distortions and an overall mixed set of data, full Q1 data is
needed to better assess the economy's true underlying strength. We aren't
expecting China's growth data to soften more visibly until well into Q2 and
retain our forecast for GDP to slow modestly to 6.6% in 2018E.
Any Chinese reaction to US trade action to stay restrained and
proportional to avoid escalation. Possible trade negotiation concessions
from China may include selected voluntary export restrictions, better IP rule
enforcement, easier requirements on selected technology transfers and more
service industries opening. If broader/more serious US trade actions are taken,
China could retaliate against major US exports (e.g. aircrafts, agricultural
products and autos), or US investments in China. We don't see China using the
CNY exchange rate or a sale of its US treasury holdings to respond to US trade
measures. Next date to watch is April when USTR issues its 2018 Special 301
Intellectual Property Rights report with a focus on China.
Economics
China
Donna Kwok
Economist
donna.kwok@ubs
+852-3712 3160
Ning Zhang
Economist
ning.zhang@ubs
+852-2971 8135
Jennifer Zhong
Associate
jennifer-a.zhong@ubssecurities
+86-105-832 8324
Lan Chen, CFA
Economist
S1460516090001
lan.chen@ubssecurities
+86-213-866 8802
Tao Wang
Economist
wang.tao@ubs
+852-2971 7525
China Economic Perspectives 20 March 2018Figure 1: NPC targets point to slower overall
credit growth and…
Figure 2: … still elevated yields/rates, but not
excessively tight interbank liquidity conditions
Source:CEIC, UBS estimatesSource:CEIC, UBS estimates
Figure 3: Property FAI rebounded strongly in
Jan-Feb
Figure 4: … which with infrastructure
investment drove FAI's upside surprise
Source:Wind, UBS estimatesSource:CEIC, UBS estimates
Figure 5: Broad electronics/tech items account
forof US' bilateral trade deficit with China
Figure 6: More serious US trade actions against
China will affect other countries too
Source:CEIC, UBS estimatesSource:WIOD, UBS
China Economic Perspectives 20 March 2018Glossary
Activity Indicators ..... ........ ........... 4
UBS Physical Activity Index UBS Expenditure Index
Business Indicators .... ........ ........... 5
NBS and Caixin PMI Other business climate indices
Property .......... ......... .......... 6
Property indicators and UBS construction index Property inventory
Fixed Asset Investment .. ......... ..........7
FAI by components Infrastructure
Industrial Production.... ......... ..........8
Industrial Production Industrial inventory
Consumption ........ ......... ..... ..... 9
Retail sales Household income and consumption
Inflation........... ......... ..........10
CPI PPI
Money & Credit..... ......... .......... 11
Money and credit growth UBS credit impulse
Base Money & Liquidity Operations ....... ......... .......... 12
Base money growth PBC liquidity provisions
Interest Rates & Bond Market........... ......... .......... 13
Rates and yields New bond issuance
Trade......... .......... 14
Exports and imports China's market share
FX Reserves & Capital Flows .......... ......... .......... 15
FX reserve breakdown Non-FDI outflows
Exchange Rate ....... ......... ..........16
CNY against USD and basket Exchange rate expectations
Financial Markets17
A/H share market Sector performance
Fiscal ......... .......... 18
Fiscal revenue and land sales PPP projects
Data Tables ........ ......... .......... 19
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