Phat Dragon The Chart Pack January 2014

1
China: the key messages

The recovery exhibited a stop-start nature in the first half of the year. The tone of the data flow shifted for the better in July and August though, with improved outcomes evident essentially across the board. The good news culminated with the release of the Q3 national accounts, which reported decent gains in real and nominal growth. However, the month-of-September data showed signs that the recovery had peaked, with a loss of momentum in both domestic and external demand entering Q4. The October & November data rounds confirmed this, particularly in relation to fixed investment. As long anticipated, the pipeline is not being replenished with sufficient urgency to maintain current growth rates in infrastructure; new housing controls are being imposed in tier 1 cities; and the lagged impact of less accommodative monetary policy (new credit has been soft in halve of last 6 months) will soon be felt.
Phat Dragon updates his basic views as follows:

a) The low ceiling recovery-expansion plateaued in Aug-Sep. b) Year-ended growth rates will begin to decelerate in earnest as a modest loss of momentum (deduced from the now less lean inventory position in heavy industry, plus a diminished tailwind from the hefty early year credit supply) combines with less flattering base effects. c) Now that the Plenum is past and the NAO report on local government debt has been released, cyclical policies will tilt more decisively towards tightening.
Key economic indicators

40 %yr Dec-10 Dec-12 Dec-11 Nov-13 %yr 40
35
30 25
35
30 25
20
15 10
20
15 10
5
0 -5
Sources: Westpac, CEIC. All indicators in volume terms except for imports and exports, which are nominal USDs. 3mma of %yr rate for monthly data, quarterly otherwise.
5
0 -5
Exports Imports Real fixed Housing Auto sales investment sales
-10
Real GDP Core IVA
Steel
Cement
-10
Various elements of Chinas national accounts

5 4 %ytd or ppt %ytd or ppt 5 4
3
2 1
Q3 '12 Q1 '13 Q3 '13
Q4 '12 Q2 '13
Sources: CEIC, Westpac Economics
3
2 1
0
-1
Investment ppt Consumption ppt Net exports ppt cont cont cont GDP deflator %ytd
0
-1
China: some compositional fundamentals

55 50 45 40 35 30 45 35 %GDP
Gross savings
Secondary output
%GDP
Gross investment Services output Household consumption
Current account (rhs) Gross exports (lhs) Gross imports (lhs)
25
15
55 50 45 40 35 30 12 9 6 3 0 -3
Aggregate activity proxies

45
%yr
Central revenue M2 money supply Electricity production Terrestrial freight
%yr
45
30
30
15
15
0
Sources: CEIC, Westpac
-15 Dec-96
-15
Dec-99 Dec-02 Dec-05 Dec-08 Dec-11
Aggregate activity proxies: industry & exports

45
%yr
Cement (lhs) Electricity (lhs) Steel (lhs) Exports (rhs)
%yr
60
45
30
30
15 15
0
0 -15
Sources: CEIC, Westpac. 3mma of year-ended rates.
-15 Jan-01
-30
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Aggregate activity proxies

80
60 %yr
Sources: CEIC, Westpac. Data smoothed.
%yr
40
35 30
40
20
25 20 15
Construction starts
0
-20
Imports Real estate investment
10 5
-40 Jan-01
0
Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Central government VAT & IVA

45
%yr
Sources: CEIC, Westpac. 3mma.
%yr
45
30
30
15
15
0
VAT revenues IVA
-15 Jan-97
-15
Jan-00 Jan-03 Jan-06 Jan-09 Jan-12
Industrial production: core and headline

50
40 %yr
Sources: CEIC, Westpac. 3mma.
%yr
Core heavy industry Headline industrial value-added
50
40
30
20
30
20
10
0
10
0
-10 Jan-97
-10
10
Chinese electricity production

45
%yr/ppt
Contribution from other sources Contribution from thermal generation Electricity production
%yr/ppt
45
30
30
15
15
0
-15 Dec-96
-15
Dec-08 Dec-11
Dec-99
Dec-02
Dec-05
11
China: business conditions, orders & GDP

25
%yr
Nominal GDP growth (lhs) Business situation* (rhs) Domestic orders* (rhs)
% long run average
20
15
10
Sources: CEIC, Westpac Economics. * 5000 enterprise survey.
5 Dec-99
130 125 120 115 110 105 100 95 90 85 80
Dec-02
Dec-05
Dec-08
Dec-11
12
Corporate survey: order books and profits

65 60
net bal.
Foreign orders Domestic orders Profitability
net bal.
65 60
55
50 45
55
50 45
40
Sources: CEIC, Westpac Economics.
40
35 Jun-96 Jun-00 Jun-04 Jun-08 Jun-12
35 Jun-92
13
New orders & export orders: PMI measures

65 60 55 50 45
NBS new orders* NBS new export orders*
index
index
65 60 55 50 45
40
35 Jan-05
Markit-HSBC new export orders Markit-HSBC new orders

Sources: CEIC, Markit. *Seasonally adjusted by Westpac Economics pre February 2011.
40
35
Jan-07
Jan-09
Jan-11
Jan-13
14
Steel inventory cycle: April 12 to Oct 13

60
45 30 15 0 inventories %yr
-15
-30 0 3 6 9 12
Sales %yr
15
15
Chinese domestic machinery sales

200 175 150 125 100 75 50 25 0 -25 -50 Mar-07 %yr Bulldozer Excavator Loader %yr 200 175
150
A slow recovery in 2013 after two weak years
125 100 75 50 25 0 -25
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
-50 Mar-14
16
Urban purchasing intentions: housing & cars

140
130 120 110 100 90 80 70 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 Sep-12 % average
Sources: CEIC, Westpac Economics. All series expressed as a percent of their long run averages.
% average
Plan house purchase Plan auto purchase
140
130 120 110 100 90 80 70
17
Urban consumer confidence: income

120
%net bal
120
115 110 105
110
100
100
95
90
Current income confidence Future income confidence
90 85 80 Sep-10 Sep-12
80 Sep-02
Sep-04
Sep-06
Sep-08
18
Consumer saving/investment preferences

140
130 120 110 100 % long run average
Preference for savings deposits (lhs) Preference for active investment (rhs)
% long run 200 average 175 150 125 100
90
80 70 60 Mar-01 Mar-03 Mar-05 Mar-07
75
50 25 0 Mar-09 Mar-11 Mar-13
19
Housing and auto sales

150 125 100 75 50 25 0 -25
Sources: CEIC, Westpac Economics. Autos are unit sales. Housing sales are by value.
%yr
Auto sales Housing sales
%yr
150 125 100 75 50 25 0 -25 -50
-50 Jan-01
Jan-03
Jan-05
Jan-07
Jan-09
Jan-11
Jan-13
20
Chinese housing sales by region

200 Sources: CEIC, Westpac Economics. 175 Centre East 150 West 125 100 75 50 25 0 -25 -50 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 %yr %yr 200 175 150 125 100 75 50 25 0 -25 -50
21
Chinese construction activity

40 %yr
%yr
40
30
30
20
Raw %yr %yr 3mma %yr 12mma
20
10
10
0 Jan 05
Jul 06
Jan 08
Jul 09
Jan 11
Jul 12
0 Jan 14
22
The development of Chinas investment cycle

Dec-11 35 %ytd 30 25 20 15 10 5 0 Real estate Manuf Transport Utilities Total
Modest upswing
Sep-12
Q3 rebound will not amuse Beijing
Dec-12
Rail has peaked, overall growth plateauing
2013H1
Nov-13
%ytd
Modest slowdown
35 30 25 20 15 10 5 0
Stop start
23
Chinese investment: converging trajectories

75 %ytd
Transport (12%)
%ytd
Manufacturing (30%)
75
60
45 30 15 0
end 2009 shares of total investment in ( ). Sources: CEIC, Westpac Economics.
60
45 30 15 0 -15
Utilities (7%) Real estate (22%)
-15 Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
24
Contributions to Chinas investment growth

15 12 9 6 3
ppt
Contribution to year-ended growth rate
0
-3
Infrastructure Real estate
-6 Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
25
Commercial & off market urban construction

60 %ytd
Market res. (42%) Market non-res. (14%)
%ytd
60
Non-market res. (8%)
40
Non-market non-res. (36%)
40
20
20
0
Sources: CEIC, Westpac Economics. End 2011 shares in parentheses.
-20 Jan-05
-20
Jan-07
Jan-09
Jan-11
Jan-13
26
State owned enterprises & fixed investment

60 50 40 ppt cont
Sources: CEIC, Westpac.
peak share for SOEs (Jan/Feb 2009)
% share of growth
SOE contribution (lhs)
55 50 45 40
Other contribution (lhs) SOE share of growth (rhs)

Peak SOE share (rhs)
30 20
10 0
2005 2006 2007 2008 2009H1 2009H2 2010H1 2010H2 2011H1 2011H2 2012H1 2012H2 2013H1
35
30 25 20 15
27
Investment projects by approver & by SOEs

50 %ytd
SOEs Central government Local government
%ytd
50
40
30 20 10
40
30 20 10
value of projects
0
-10 -10 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
28
New and ongoing projects

90 75 60 45 30 15 0 %yr %yr 90 75 60 45 30 15 0
on-going projects new starts
Sources: CEIC, Westpac Economics. 3mma.
value of projects
-15 -30 Jan-05

Jan-07
-15 -30
Jan-09
Jan-11
Jan-13
29
Chinese infrastructure spending growth

50 40 30 20 ppt cont.
Other Other transport* Highways Energy Total
42
forecast
28
22 16 23 22
18
6 3
18
10 0
Sources: CEIC, Westpac. Contribution to full year growth. * Railways, airports, mass urban transit, pipeline, waterways.
-10
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
30
Contributions to fixed investment growth

40 ppt cont.
Sources: CEIC, Westpac. Contribution to full year growth.
ppt cont.
Other services & primary Manufacturing Infrastructure Real estate
5.9 4.9 11.9 13.7 6.9 5.5 1.0 8.2 8.3 3.8 5.8 5.3 4.8 5.7 4.3 4.4
30
4.5 3.8 3.6 4.8
5.2
7.6
3.1 7.7
20
10.1 8.2 9.9 9.1
3.6 3.4
10
9.1
7.6
4.4
7.0
5.0
5.3
8.2
5.6
5.4
4.6
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
31
Major cities: rail network & population density

700 600 500 400 300
Nagoya Paris
Rail track metres per sqm

London OsakaKobeKyoto Hong Kong
SeoulIncheon
TokyoYokohama
Singapore
200 100 0 0 5
New York GZ TJ BJ NJ Shanghai SZ Taipei CQ WH DL
Sources: Westpac Economics, OECD. 2012 figures.
1000 people per sqm 15 20 25 30
10
32
China: existing and planned subways

1200 1000 800 600
kms
Planned (lhs) Underway (lhs) Existing (lhs) Eventual city density (rhs) Beijing current density (rhs) Eventual weighted density (rhs)
1 Fosham 2 Wuhan 3 Zhengzhou 4 Guangzhou 5 Fuzhou 6 Shanghai 7 Taiyuan 8 Dongguan 9 Shenyang 10 Nanjing 11 Tianjin 12 Ningbo 13 Xian 14 Shenzhen 15 Nanning 16 Chongqing 17 Wuxi 18 Beijing 19 Harbin
Track metres per sqm

20 Hangzhou 21 Qingdao 22 Nanchang 23 Guiyang 24 Dalian 25 Suzhou 26 Wenzhou 27 Changchun 28 Kunming 29 Lanzhou 30 Hefei 31 Shijiazhuang 32 Xiamen 33 Chengdu 34 Changsha 35 Changzhou Sources: OECD, Westpac.
900 800 700 600 500 400
400 200 0
1 2 3 4 5 6 7 8
300
200 100
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
33
Monetary and fiscal policy in China

15
Gap ppt
Credit to GDP gap (lhs)*
Fiscal position (rhs)
% of GDP
Q4 estimate
10
5 0 -5 -10 -15
2
1 0 -1 -2
Sources: CEIC, Westpac Economics. * Bank lending only, BIS methodology.
-3 -4 Mar-05 Mar-09 Mar-13
-20 Mar-97
Mar-01
34
Central government finances

36
%yr
%GDP
12
24
12
Balance %GDP (rhs) Revenue growth (lhs) Expenditure growth (lhs)
-12 Dec-96
-4
Dec-99 Dec-02 Dec-05 Dec-08 Dec-11
35
Growth in the monetary aggregates

40
%yr
Deposits M1
%yr
40
30
M2 DXRR*
30
20
20
10
Sources: CEIC, Westpac. * DXRR: Deposits ex required reserves.
10
0 Dec-99
0
Dec-02 Dec-05 Dec-08 Dec-11
36
Peoples Bank open market operations

1600 RMBbn
RMBbn RRR cuts Net injection
1600
1200
800
1200
800
400
0
400
0
-400
-800
Reverse repo maturities
Bills issued Reverse repo Net injection/withdrawal
-400
Repo
Bill maturities Repo maturities
-800 Net withdrawal
-1200
-1200
-1600
-1600 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13
Interbank loan volumes by maturity: weekly

2000 1750 1500 1250 1000
RMBbn Other maturity Overnight Total

RMBbn
2000 1750
y = 1.3262x + 562.37
1500 1250 1000
750
500
750
500
250
0
250
0
Jan-10
Sep-10
May-11
Feb-12
Oct-12
Jul-13
Interbank loan turnover volume by type of FI

12000 10000 8000 6000 4000 2000 0
RMBbn
Other FIs Foreign Private urban banks
RMBbn
12000 10000 8000 6000 4000 2000 0
State banks
Rural banks & Credit co-ops
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Loans executed relative to benchmark

120 100 80 60 40 20 0
Dec-04 Jun-06 Dec-07 Jun-09 Dec-10 Jun-12
%
10% above 10% below At benchmark
%
Source: CEIC
120 100 80 60 40 20 0
Dec-13
40
Percent of loans issued at a discount

40
% %
40
% of loans executed 10% below benchmark
30
30
20
20
10
Source: CEIC, Westpac Economics.
10
0 Dec-04
0
Dec-06 Dec-08 Dec-10 Dec-12
41
SHIBOR & repo/reverse repo corridor

14 12 10 8 6 4 2 0 May-12 Sep-12 Jan-13 May-13 Sep-13 %pa
Sources: Westpac Economics, CEIC.
%pa
14 12 10 8 6 4 2 0
PBOC revealed 7 day rate corridor

Overnight SHIBOR
The policy benchmark & actual loan rates

10 9 8 7 6 %pa %pa 10 9 8 7 6
General loans
1-yr policy rate
Bills
Housing
5
4 3 2 Sep-07 Sep-08 Sep-09 Sep-10
5
4 3 2 Sep-11 Sep-12 Sep-13
43
The deposit ceiling and WMP returns

6 %pa
Deposit rate with 10% top up 1 year benchmark saving deposit Weighted average WMP return
%pa
5
4 3 2 1 Jan-09
5
4 3 2
Sources: Westpac, CEIC.
1 Jan-11 Jan-12 Jan-13 Jan-14
Jan-10
New lending : shadow sedate in second half

3000 2500
RMBbn
Sources: Westpac, CEIC.
RMBbn
Other financing* Bank medium & long term Bank - Bill finance Bank to Household Bank short term Total bank
3000 2500
2000
1500 1000
2000
1500 1000
500
0
* Other financing includes trust and entrusted loans, equity and bond raisings, non-bank bills and FX loans.
500
0 -500 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14
-500 Jan 09
Medium & long term loans

140 120
MLT % of total
New medium and long term loans (rhs) MLT share (lhs)
RMBbn
Sources: CEIC, Westpac. MLT share is smoothed.
1250 1000 750 500 250 0
100
80 60
40
20 0 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12
Total credit supply new flows

200
%yr
TSF (lhs) Banks* (lhs) Other finance (rhs)
%yr
Sources: CEIC, Westpac. * Local currency loans only. 12 month sum of new flows.
640
175
150 125 100 75 50 25 0
560
480 400 320 240 160 80 0
-25
-50 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12
-80
-160 Jan-14
Credit supply growth & loan composition

125 100 %yr
TSF (lhs)
MLT share of bank loans (rhs)
%yr
175 150
75
50 25 0 -25
Sources: Westpac Economics, CEIC. TSF is total social financing. MLT is medium and long terms loans.
125
100 75 50 25
-50 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Property developer finance: growth by type

125 %yr
"Self raised" Loans Down payments and sales revenue Total
%yr
125
100
75 50 25 0 -25 -50 Dec-04
100
75 50 25 0
-25 -50 Dec-10 Dec-12
Dec-06
Dec-08
49
Land purchased and construction starts

80 %yr
Sources: CEIC, Westpac Economics. 12mma.
%yr
80
60
40 20 0
Starts (volume)
60
40 20 0 -20
Land purchased
-20
-40 -40 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14
50
Sales volumes usually lead starts by 6 months

75 60 45 30 %yr Sales 6mths prior
%yr
75 60 45 30
Starts
15 0 -15
Sources: CEIC, Westpac. Underlying data in sqm. 12 month average of raw oya growth rate.
15 0 -15
-30
-30 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
51
Housing sales, completions & land prices

250 225 200 175
Residential land price (rhs)
index
Sources: CEIC, Westpac. Aug-2006 = 100. Underlying activity data in sqm. Land price is a spliced series of 105 and 70 city data.
index
160 150 140 130
Completions (lhs) Sales (lhs)
150 125 100
120 110 100
75 90 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13
52
Chinese land prices: total & residential

25
% 6mth annualised
% 6mth annualised
Total Residential
25
20
15 10 5 0 -5 -10 Mar-05 Sep-06 Mar-08 Sep-09
20
15 10 5 0
Sources: CEIC, Westpac Economics. Land prices are a spliced series for 70 cities up to Dec-10 and 105 cities since.
-5 -10
Mar-11
Sep-12
Mar-14
53
70 city house prices: net balance m/m change

100 80 60 40 20 0 -20 -40 -60 -80 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13
Net % of cities
Net % of cities
New Secondary market
100 80 60 40 20 0 -20 -40 -60 -80
54
Major city house prices: level

130 125 120 115 110 105 100 Feb-11
Index 2010=100 Beijing Guangzhou Chongqing Shanghai Shenzhen
Index 2010=100
130 125 120 115 110 105 100
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
55
Daily iron ore prices in China

USD/t USD/t
Sources: Westpac Economics, Bloomberg, SGX Asiaclear
190
175 160 145 130
30% in two months
190
+82% in 3 months
175 160 145 130
115
100 85 70 Aug-10
115
30% in five months
3 mth forward 36% in two months 9 mth forward TSI 62% fines benchmark
100 85 70
Feb-11
Sep-11
Mar-12
Oct-12
Apr-13
Nov-13
56
Chinese imports total & key raw materials

index 700 index 650 Sources: CEIC, Westpac Economics. Value of total imports and volume of raw materials. 600 Total imports 550 500 Crude oil 450 Iron ore 400 350 300 250 200 150 100 50 0 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 700 650 600 550 500 450 400 350 300 250 200 150 100 50 0
57
Various measures of inflation

15 10 5 0
Non-food CPI Fixed investment price index
%yr
%yr
15 10 5 0
-5 -10 Mar-04
Consumer price index GDP implicit price deflator Producer price index
-5 -10
Sep-05
Mar-07
Sep-08
Mar-10
Sep-11
Mar-13
58
Chinese consumer prices

25 %yr Total Shelter Clothing Food Health
%yr
25
20
15 10 5 0 -5
20
15 10 5 0 -5
-10 Jan-01
-10 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
Chinese CPI: the shelter component

15 %yr
%yr
15
10
5 0 -5 -10 -15 -20 Jan-01 Total Building costs Rent Private housing Utilities Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
10
5 0 -5 -10 -15 -20
Chinese CPI: clothing & related

12 10 8 6 4 2 0 -2 -4 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 %yr
%yr
Total Footwear Tailoring Garment Material
12 10 8 6 4 2 0 -2 -4
Chinese producer prices

40 %yr
%yr
40
30
20 10 0 -10 -20 -30 Jan-01 Jan-03 Total Producer goods Mining Raw materials Manufactured Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
30
20 10 0 -10 -20 -30
Chinese consumer prices

25 %yr Total Shelter Clothing Food Health
%yr
25
20
15 10 5 0 -5
20
15 10 5 0 -5
-10 Jan-01
63
Chinese CPI: the shelter component

15 %yr
%yr
15
10
5 0 -5 -10 -15 -20 Jan-01 Total Building costs Rent Private housing Utilities Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
10
5 0 -5 -10 -15 -20
64
Chinese CPI: clothing & related

12 10 8 6 4 2 0 -2 -4 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 %yr
%yr
Total Footwear Tailoring Garment Material
12 10 8 6 4 2 0 -2 -4
65
Chinese producer prices

40 %yr
%yr
40
30
20 10 0 -10 -20 -30 Jan-01 Jan-03 Total Producer goods Mining Raw materials Manufactured Jan-05 Jan-07 Jan-09 Jan-11 Jan-13
30
20 10 0 -10 -20 -30
66
Decomposing 12 month real CNY appreciation

20 16
ppt
Relative price level Nominal exchange rate Real exchange rate USD/CNY inverted
ppt
20 16
12
8 4 0
12
8 4 0
-4
-8
Source: BIS, Westpac.
-4
-8 Jan-99 Jan-02 Jan-05 Jan-08 Jan-11 -12 Jan-14
-12 Jan-96
Chinas exchange rate: broad & bilateral USD

140 index
Sources: CEIC, BIS. Indices = 100 in July 2005.
index
140
130
120 110 100 90
130
120 110 100 90
Real
Nominal
USD per Yuan
80 70 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09 Jan-12
80 70
The exchange rate & inflation

30 Sources: CEIC, Westpac Economics 25 20 15 10 5 0 -5 -10 -15 -20 Jan-01 Dec-03 Nov-06
%chg
%chg
Annualised CPI inflation (lhs) Annualised CNY appreciation (rhs)
30 25 20 15 10 5 0 -5 -10 -15 -20
Oct-09
Sep-12
69
Food prices & the CNY exchange rate

25 20 %
Food price inflation %yr (lhs) USD/CNY %yr (rhs)
10 8
15
10 5
forecast
6
4 2
0
-5 -2 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
70
Exporter margins and the exchange rate

%
10
Range of profit margins in key export industries
% 10
Annual appreciation of CNY
6
4 2
6
4 2
0
Sources: Westpac Economics, CEIC,
0
-2 Jan-01
FX reserves, capital flows & bank FX positions

120 120 100 100 80 80 60 60 40 40 20 20 0 0 -20 -20 Other -40 -40 FDI inflow -60 -60 Trade balance Change in FX reserves -80 -80 Sources: CEIC, Westpac Net bank FX settlement -100 -100 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 USDbn USDbn
72
Overnight SHIBOR & the 12mth CNY NDF

3.0 %chg
%pa
14 12 10 8 6 4
2.5
2.0 1.5 1.0 0.5 Sep-12
CNY NDF 12mth (lhs) Overnight SHIBOR (rhs)
2 0 Jan-13 May-13 Sep-13 Jan-14
USD/CNY NDF pricing

8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.6 6.4 6.2 6.0
CNY CNY
3mth 6mth 12mth 1mth

Sources: Westpac, CEIC
8.4 8.2 8.0 7.8 7.6 7.4 7.2 7.0 6.8 6.6 6.4 6.2 6.0
Feb 03
Jan 05
Jan 07
Jan 09
Dec 10
Dec 12
USD/CNY NDF curves

40 30 20 10 0 -10 -20 -30 -40 -50 -60 -70
bps 12mth minus 3mth 12mth minus 6mth 12mth minus 1mth bps
Sources: Westpac, CEIC
40 30 20 10 0 -10 -20 -30 -40 -50 -60 -70
Feb 03 Jun 04 Oct 05 Mar 07 Jul 08 Dec 09 Apr 11 Sep 12 Jan 14
USD/CNY NDF curves

15
10 5 0 -5 -10 -15 bps
12mth minus 3mth 12mth minus 6mth 12mth minus 1mth
bps
15
10 5 0 -5 -10 -15
-20
-25
Sources: Westpac, Bloomberg
-20
-25
Jan 10 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13
Growth spillovers between systemic economies

0.25
0.20 p e r c e n t 0.15 0.10 0.05 0.00 China Euro area
Impulse response from positive 1ppt output shocks. Source: IMF
US Japan From China From Euro area From US From Japan
77
Net IIP in the G20: many debtors, few creditors

50
%GDP
%GDP
Source: IMF, Westpac.
50
40
30 20 10 0 -10 -20
40
30 20 10 0 -10 -20
-30
-40 -50
JPY DEUCNY ARP RUB INR KRWFRA CADGBP ZAR USD BRL ITA IDR MXN TKL AUD
-30
-40 -50
78
Various measures of Chinese export leverage

40
%GDP
Net exports %GDP
%GDP
40
Export GVA %GDP
30
Gross exports %GDP
30
20
20
10
10
0 2000 2002 2004 2006 2008 2010 2012
79
World export shares by country & region

15 12
Other Asia
% world total
USA
Sources: WDI, Westpac. Goods & services.
9
Japan
Germany
6
UK
France
China
3
India
0 1984 1988 1992 1996 2000 2004 2008
80
Manufacturing exports and resource imports

25 20 15 10 5 0 1980
% world total
Japan - manuf exports China & HK - manuf exports Germany - manuf exports USA - manuf exports Japan - resource imports China & HK - resource imports Germany - resource imports USA - resource imports
Sources: WDI, WTO. Resource imports defined as fuel & mining products.
1985
1990
1995
2000
2005
2010
81
Nominal export shares: major countries

60 50
2000
% GDP
Sources: CEIC, OECD, Westpac, Dragonomics. Ex China, nominal national accounts basis for goods and services. For China, goods only, value-added estimates.
40 30
2007 2011
20
10 0 AUD FRA DEU JPY KRW SEK TKL GBP USD BRL INR CNY
82
Chinas share: selected elements of world activity

25 %
Sources: UN, IMF, IEA, Westpac Economics. * Goods & services. ^ Total primary energy supply `` From fossil fuel combustion. All national accounts related shares are in 2005 constant US dollars.
20
15 10 5 0
1980
2000
2010
Construction value added
Services value added
Nominal USD GDP
PPP GDP
Exports*
Gross fixed capital formation
Manufacturing value added
Household consumption
CO2 emissions``
Energy use^
Imports*
83
Export unit value by industry

30 %yr Sources: Westpac, CEIC. 3mma. 25 20 15 10 5 0 -5 Clothing & footwear -10 Furniture -15 Elec & telco Office machinery -20 Textiles -25
Jan-05 Jan-07 Jan-09 Jan-11
%yr
30 25 20 15 10 5 0 -5 -10 -15 -20 -25
Jan-13
84
The Canton Trade Fair: sourcing bellwether

40 30 20 10 0
%yr
%yr
40 30 20 10 0
-10 -20
-30 -40 Spring Autumn Total both sessions
-10 -20
-30 -40
2005 2006 2007 2008 2009 2010 2011 2012 2013
Export unit value by industry

30 %yr Sources: Westpac, CEIC. 3mma. 25 20 15 10 5 0 -5 Clothing & footwear -10 Furniture -15 Elec & telco Office machinery -20 Textiles -25
Jan-05 Jan-07 Jan-09 Jan-11
%yr
30 25 20 15 10 5 0 -5 -10 -15 -20 -25
Jan-13
Exports by broad sector

75 %yr
Sources: Westpac, CEIC. 3mma.
%yr
75 60 45 30 15 0
60 45 30 15 0 -15 -30 -45

Light and basic Machinery & transport Other manufactures Chemicals
-15 -30 -45
Imports by broad sector

90 %yr 75
%yr
90 75
60 45
30 15 0 -15 -30 -45
Jan-2001
Other raw materials Chemicals Machinery & transport Fuel Other manufactures Food
60 45
30 15 0 -15 -30 -45
Jan-2010 Jan-2013
Jan-2004
Jan-2007
Chinese exports to developed markets

75 %yr
%yr
75 60 45 30 15 0
60 45 30 15 0 -15 -30 -45

Jan-2001
US Australia Canada
Jan-2004
Japan New Zealand EU

Jan-2007 Jan-2010 Jan-2013
-15 -30 -45
Exports to emerging markets

120 %yr 100
%yr
120 100
80 60
40 20 0 -20 -40 -60
80 60
40 20 India Taiwan Brazil Korea Russia ASEAN 0 -20 -40 -60
Chinese imports from developed markets

90 %yr 75
%yr
90 75
60 45
30 15 0 -15 -30 -45
US NZ Japan Canada Australia EU
60 45
30 15 0 -15 -30 -45
Jan-2010 Jan-2013
Jan-2001
Jan-2004
Jan-2007
Imports from emerging markets

180 %yr 150 120 90 60 30 0 -30 -60
%yr India Taiwan Brazil Korea Russia ASEAN
180 150 120 90 60 30 0 -30 -60
Chinese trade: uneven outcomes

90 %yr 75
%yr
Exports to US/EU/JP Imports from commodity producers Imports from NIEs Exports to NIEs Imports from US/EU/JP
90 75
60 45
30 15 0 -15 -30 -45
Jan-2001 Jan-2004
60 45
30 15 0 -15 -30 -45
Jan-2007
Jan-2010
Jan-2013
Chinas current account balance

12 9 6 3 0 -3 Dec-98
% GDP
Other CA Trade Current account
% GDP
12 9 6 3 0 -3
Dec-01
Dec-04
Dec-07
Dec-10
Dec-13
94
Chinas balance of payments

20 15
% GDP
Current account Other Change in reserves Portfolio balance
% GDP
Inflow
20 15
10
5 0 -5
Direct balance
10
5 0 -5
Outflow
-10
-15 -20 Dec-98 Dec-01 Dec-04 Dec-07
-10
-15 -20
Source: CEIC, Westpac Economics.
Dec-10
Dec-13
The state of global imbalances

3 2 1 0 -1 -2 -3 1994 1998 2002 2006 2010 2014 2018 % WGDP
South Asia MENA, Canada and Russia CEE and CIS ex Russia Other EU China NIEs & ASEAN 5 Latam Germany Japan USA
% WGDP
Sources: IMF, Westpac.
96
Chinas trade balance decomposed

15
10 5 0 -5
Current USD prices converted to RMB. Sources: CEIC, Westpac Economics.
% GDP
Overall trade balance Primary products balance Total manufacturing balance machinery and transport balance (lhs)
% GDP
15
10 5 0 -5 -10
-10 1980
1985
1990
1995
2000
2005
2010
97
Industrial profits: level & as a share of GDP

9
Ln index
Profits - log level
% GDP
12 11 10
Profits % GDP
9
7 8 7 6 6
Sources: CEIC. Underlying data seasonally adjusted by Westpac Economics. Log level is in the quarter. % of GDP is 4qtr sum.
4
3
5 Nov-00
Nov-03
Nov-06
Nov-09
Nov-12
98
Income level per capita & its distribution

70 60 50
Gini index
South Africa
Colombia China Brazil Chile
Sources: Westpac Economics, WDI
Mexico Russia
US
40
30
Thai
Poland INR & IDR Malaysia

Wealthy OECD
PPP GDP per head
20 0 10 20 30 40 50 60
99
China: the key messages reiterated

The recovery exhibited a stop-start nature in the first half of the year. The tone of the data flow shifted for the better in July and August though, with improved outcomes evident essentially across the board. The good news culminated with the release of the Q3 national accounts, which reported decent gains in real and nominal growth. However, the month-of-September data showed signs that the recovery had peaked, with a loss of momentum in both domestic and external demand entering Q4. The October & November data rounds confirmed this, particularly in relation to fixed investment. As long anticipated, the pipeline is not being replenished with sufficient urgency to maintain current growth rates in infrastructure; new housing controls are being imposed in tier 1 cities; and the lagged impact of less accommodative monetary policy (new credit has been soft in halve of last 6 months) will soon be felt.
Phat Dragon updates his basic views as follows:

a) The low ceiling recovery-expansion plateaued in Aug-Sep. b) Year-ended growth rates will begin to decelerate in earnest as a modest loss of momentum (deduced from the now less lean inventory position in heavy industry, plus a diminished tailwind from the hefty early year credit supply) combines with less flattering base effects. c) Now that the Plenum is past and the NAO report on local government debt has been released, cyclical policies will tilt more decisively towards tightening.
100
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Phat Dragon The Chart Pack January 2014

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Phat Dragon The Chart Pack January 2014

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1

China: the key messages

Phat Dragon updates his basic views as follows:

Key economic indicators

Real GDP Core IVA

Various elements of Chinas national accounts

Q3 '12 Q1 '13 Q3 '13

China: some compositional fundamentals

Gross investment Services output Household consumption

Current account (rhs) Gross exports (lhs) Gross imports (lhs)

Aggregate activity proxies

Aggregate activity proxies: industry & exports

Aggregate activity proxies

Central government VAT & IVA

Industrial production: core and headline

Chinese electricity production

China: business conditions, orders & GDP

% long run average

130 125 120 115 110 105 100 95 90 85 80

Corporate survey: order books and profits

New orders & export orders: PMI measures

Markit-HSBC new export orders Markit-HSBC new orders

Steel inventory cycle: April 12 to Oct 13

Chinese domestic machinery sales

125 100 75 50 25 0 -25

Urban purchasing intentions: housing & cars

Urban consumer confidence: income

Consumer saving/investment preferences

% long run 200 average 175 150 125 100

Housing and auto sales

150 125 100 75 50 25 0 -25 -50

Chinese housing sales by region

Chinese construction activity

The development of Chinas investment cycle

Chinese investment: converging trajectories

Utilities (7%) Real estate (22%)

Contributions to Chinas investment growth

Infrastructure Real estate

Commercial & off market urban construction

Non-market res. (8%)

Non-market non-res. (36%)

State owned enterprises & fixed investment

Other contribution (lhs) SOE share of growth (rhs)

Investment projects by approver & by SOEs

New and ongoing projects

-15 -30 Jan-05

Chinese infrastructure spending growth

Contributions to fixed investment growth

10.1 8.2 9.9 9.1

Major cities: rail network & population density

Rail track metres per sqm

Sources: Westpac Economics, OECD. 2012 figures.

1000 people per sqm 15 20 25 30

China: existing and planned subways

Track metres per sqm

900 800 700 600 500 400

Monetary and fiscal policy in China

Sources: CEIC, Westpac Economics. * Bank lending only, BIS methodology.

-3 -4 Mar-05 Mar-09 Mar-13

Central government finances

Growth in the monetary aggregates

Peoples Bank open market operations

RMBbn RRR cuts Net injection