Macro China Economics China Inside Out How to sustain the economic recovery abc Global Research Growth should continue to bottom out in the coming quarters as Beijing's mini-stimulus package filters through But structural reforms are needed to sustain a 7-8% growth rate in the coming years The implementation of deregulation and financial reforms the key to revitalising private investment and consumption China’s economy is perking up. The latest data points suggest growth has bottomed after hitting a trough of 7.5% y-o-y in 2Q. Electricity output and rail freight volumes were both up, while September’s HSBC PMI (flash) expanded for the second consecutive month on the back of modest gains of new business and production We think this recovery is sustainable, unlike last year when GDP growth rebounded in 4Q 2012 before slowing unexpectedly. The key difference is that this round of stimulus is more wide-ranging (covering infrastructure, IT and VAT reforms), better suited to helping the economy rebalance and less likely to exacerbate existing structural problems that are being addressed. Bear in mind that Beijing has plenty of fiscal and monetary ammunition left should it need to protect growth later on. 26 September 2013 Qu Hongbin Chief Economist, Greater China The Hongkong and Shanghai Banking Corporation Limited +852 2822 2025 [email protected] Sun Junwei Economist The Hongkong and Shanghai Banking Corporation Limited +8610 5999 8234 [email protected] View HSBC Global Research at: http://www.research.hsbc.com Issuer of report: The Hongkong and Shanghai Banking Corporation Limited Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it While the mini-stimulus should support a modest recovery into 1H14, in order to sustain a growth rate of 7.5% or more, we believe China needs to introduce and implement structural reforms. While some reforms will likely involve some short-term pain, we expect major reforms, due to be announced in November, to boost pent-up private sector demand for investment and consumption, putting growth on a more healthy and sustainable path in the coming years. We expect to see: 1) a reduction in the government’s role in business and deregulation of state-dominated sectors (especially services) in order to help private enterprise; 2) financial reforms to ease financing difficulties for private investors and small business; and 3) improved income distribution to unleash the consumption power through fiscal reforms and deregulation, which should increase demand for services such as IT, elderly and medical care, and culture. abc Macro China Economics 26 September 2013 Contents How to sustain China’s recovery 3 Bouncing back 3 Why this recovery is sustainable 4 Reforms: getting the job done 5 Prices 22 Commodity prices 24 Money and credit growth 26 Interest and exchange rates 28 Employment and income 30 Asset markets 32 Data and forecasts 35 Charts 11 GDP 12 Industrial production 14 Private consumption 16 Fixed investment 18 Disclosure appendix 38 Trade 20 Disclaimer 39 2 China 36 abc Macro China Economics 26 September 2013 How to sustain China’s recovery Growth should continue to bottom out in the coming quarters as Beijing's mini-stimulus package filters through But structural reforms are needed to sustain a 7-8% growth rate in the coming years The implementation of deregulation and financial reforms key to revitalising private investment and consumption Bouncing back Chinese data flows are looking more positive. The upside surprises over the past two months imply that the economy has bottomed out after falling to 7.5% y-o-y in 2Q. From exports and investment, to industrial production (IP) and electricity production, things seem to be picking up nicely (See China: August data beat expectations, adding evidence for recovery, 10 September 2013). The latest IP readings are consistent with GDP growth of around 7.8% in 3Q (chart 1). Chart 1. Growth is bottoming out 16 (%yr) (%yr) 20 18 14 16 12 14 10 12 10 8 8 6 6 So, what’s driving the latest rebound? While export growth recovered a little to 5-7% in the July-August period from 2Q’s 3.7% y-o-y, the key driver is on the domestic front as Beijing’s fine-tuning measures have started to lift business confidence and hold up investment demand. Investment growth picked up to 21.4% y-o-y in August from less than 20% a few months ago as the acceleration in infrastructure investment offset the weakness in manufacturing and property investment (chart 2). Infrastructure-led investment demand has led to producer prices bottoming out as companies start to restock. State-owned enterprises (SOEs) and large companies with stronger government connections stand out as the first beneficiaries. The large companies’ sub-index of the official manufacturing purchasing managers’ index (PMI) expanded faster than the gauge for smaller companies. 00 01 02 03 04 05 06 07 08 09 10 11 12 13 GDP (Lhs) IP (Rhs) Source: CEIC, HSBC 3 abc Macro China Economics 26 September 2013 Chart 2. FAI has picked up on the back of accelerating infrastructure investment 60 (%yr, 3mma) (%yr, 3mma) 60 50 40 50 40 30 20 30 20 10 10 0 -10 0 -10 05 06 07 08 09 10 11 Total FAI Property 12 13 Infrastructure Manufacturing Source: CEIC, HSBC But the good news has a broader base than that. The HSBC China manufacturing PMI rebounded more than expected to a six-month high of 51.2 (vs. 50.1 in August and Bloomberg expectations of 50.9) in September’s flash reading (see HSBC China Manufacturing PMI (Flash, Sep): Gaining a firmer foothold, 23 September 2013). This was the result of simultaneous improvement in external and domestic demand conditions, suggesting that GDP growth is likely to improve on a sequential basis in the coming months. Why this recovery is sustainable The key question now is whether this pick-up in growth is sustainable, or whether we will see a repeat of last year when GDP growth rebounded in 4Q 2012 before slowing unexpectedly from 1Q 2013. We believe the rebound will continue in the first half of next year for four reasons: The latest stimulus is more wide-ranging than the subway-led investment projects approved in the summer of 2012. The package includes investment in infrastructure, IT, public housing and environmental protection, as well as VAT reform and tax breaks for small and medium-sized enterprises (SMEs). This provides a short-term counterbalance to the slowdown in growth and also helps the economy rebalance. It is less likely to 4 exacerbate existing structural issues which Beijing is currently addressing and should help generate better returns from projects linked to the country’s broad urbanisation push. Second, the funding channels for these investment projects are more diversified. Non-loan financing now represents nearly 50% in total social financing and the average monthly bond issuance rebounded in August after the summer lull. Reform measures are also in the pipeline, including the encouragement of private investment, the establishment of a railway development fund and the expansion of bond issuance. At the same time, monetary conditions remain accommodative – in recent months, M2 growth has been over 14.5% y-o-y and total social financing growth above 20% – supporting a GDP growth rate of above 7.5%. Third, the structural reforms running in parallel with the latest stimulus are helping to check tail risks like over-capacity and the use of non-standard credit channels such as shadow banking. In fact, the recent improvement in the economy is creating favourable conditions for Beijing policy makers to push forward with reforms, even though some reforms may involve short-term pain. A comprehensive reform blueprint is expected to be unveiled at the third plenary session of the 18th CPC central committee in November. We expect changes in administrative, fiscal and taxation systems, pricing schemes, financial markets and urbanisation. Lastly, the full impact of Beijing’s fine-tuning measures has yet to be felt. Most were introduced in July and will take some time to be fully implemented. The nationwide extension of the VAT tax reform and tax abc Macro China Economics 26 September 2013 reductions for SMEs should make life easier for small business, which is key to maintaining stability in the labour market. Investment in public housing, railway and IT infrastructure is also set to gradually pick up pace. Reforms: getting the job done There is no doubt in our mind that putting the right reforms in place will both help cement the recovery and lay the foundations for the next leg of growth. Much has been said about the reform process but, for us, it is what is done that matters rather than what is said. The reforms must contain real measures that will deliver real change. It is clear that sustainable growth would hinge on what happens on the domestic front, rather than a recovery in global demand. HSBC’s economics team forecasts 2-3% global growth in the next two years, still way below the level before the financial crisis. Domestic demand has contributed more than 106% of China’s growth over the past five years (which means net exports made a negative contribution). To sustain domestic demand, we believe two things are crucial: 1) generic growth in both investment and consumption demand; and 2) remove obstacles so that supply-side conditions can fully meet the rise in demand. Deregulation to revitalise private investment Investment should remain the important growth driver for the foreseeable future. With huge urbanisation-led investment demand, the challenge is how to ensure sustainable and efficient investment growth. Looking at the recent rebound in investment growth, it is mainly driven by government-backed infrastructure investment. However, this comes with a long list of related problems, such as inefficiency, corruption, limited sources of funding and the risk of rising local government debt. We believe the answer lies in encouraging private investment. Private investment represents over 60% of China’s total investment. However, over the past two year, it has decelerated at a faster pace than overall fixed asset investment (chart 3). Total FAI growth slowed by around 5ppts between 2011 and 2013, but private investment growth dropped by more than 12ppts. This reflects the difficulties facing private investors, from market access restrictions to lengthy approval process and financing constraints. Chart 3. Private investment growth decelerated faster than total FAI (%yr, ytd) 35 30 25 20 15 2011 2012 Total FAI 2013 Private FAI Source: CEIC, HSBC As we have argued before (see China: Faster reform, slower growth, June 2013), private enterprises are far more efficient than SOEs. Measured by profitability, private companies have much higher returns, both on assets and equity (chart 4). They are also the most important provider of jobs, employing 80% of the workforce, up from 50% in the 1990s (chart 5). Chart 4. Private enterprise is more efficient than SOEs (return on assets) 16 14 12 10 8 6 4 2 0 (%) 1996 1998 2000 2002 2004 2006 2008 2010 2012 SOE Private Source: CEIC, HSBC 5 abc Macro China Economics 26 September 2013 Chart 5. Non-SOEs employ the majority of the workforce 100% 80% 60% 40% 20% 0% 1980 1984 1988 1992 1996 2000 2004 2008 2012 SOEs' share in employment total investment in primary and secondary industries but only around 50% in tertiary industries (chart 6). That is well below its 63.5% share of total fixed asset investment. Within tertiary industries, private investment represented between 20% and 30% in the transport, utility, education and healthcare sectors this year. However, private investment in the financial services and IT sectors is zero. This is not because of a lack of demand. Source: CEIC, HSBC We believe the best way to revitalise private investment is through deregulation and reforms. Although the process has already started, it has yet to bear much material. Over the past two years, industrial measures have been announced, following the so-called “36 guidelines” to encourage private investment (“国 36 条”). However, the reality is that they have had little effect. More concrete steps are needed to unlock the potential of private investment. Market entry Private companies face many entry barriers. While SOEs are allowed to invest in 72 out of 80 industries, private companies can only enter 42 (less than foreign companies, which can invest in 62). Private investment represents over 75% of The “36 guidelines” make it clear that government investment should focus on areas concerned with national security and those where markets are experiencing failure. Private enterprise is encouraged to enter infrastructure projects, municipal projects and other public services suitable for market-based operations. More than half of content contained in the “36 guidelines” concentrates on encouraging private investment to enter various sectors. These sectors include energy, telecom, infrastructure, municipal public services, public housing, medical care, education, social welfare, culture, tourism, sporting, financial services, logistics, and defence technology. Chart 6. Lower private investment in tertiary sectors 90 (%) private investment as % of FAI 80 70 60 50 40 30 20 10 0 Primary Source: CEIC, HSBC 6 Secondary Mining Manufacturing Tertiary Transport Utility Education Healthcare Culture Public admin abc Macro China Economics 26 September 2013 However, a report by the All-China Federation of Industry & Commerce said that market barriers remained in place and some of the guidelines for entry were not practical or set very high thresholds. Premier Li Keqiang recently called for greater efforts to remove these barriers and urged government officials to ensure that practical market access rules were put in place. He also wants working examples that show how this can work “as soon as possible” in areas such as finance, oil, electricity, railways, telecoms, resource development and public utilities (source: China Daily 7 September 2013). Opening the financial services sector to private companies should also ease the financing difficulties for small companies. Privately-owned banks are normally small banks, whose main customers are small companies. The entry of privately-owned banks should also create more competition, increasing efficiency. Unleashing the power of private consumption The expansion of private consumption is high on the policy agenda. This can be achieved in a number of different ways. We expect more practical guidelines and proper implementation to lead to an increase in private investment. China’s top 500 private enterprises operate in sectors which represent the best opportunities for change. According to the All-China Federation of Industry and Commerce, commerce and logistics, resources and energy and financial services are the three favourite areas where China’s top private companies would like to invest. Income growth The good news is that the new policy makers are making efforts to streamline the government and shorten the administrative approval process. Income distribution Financing We have long argued that the government should speed up financial market reforms, especially the development of the bond market, to allow municipal bonds to be issued to finance local government infrastructure projects. This should provide long-term sustainable financing to public infrastructure investment that is being led by urbanisation. The development of the bond market should also force banks to shift their loan focus from large to small enterprises, as big companies can easily obtain bond financing at a longer maturity and lower costs than bank loans. One of the top priorities is rapid income growth. This is a challenge when the slowdown in growth has weighed on employment and incomes. But as growth should rebound to above 7.5% y-o-y in the coming quarters, it should translate into improving labour market conditions and faster income growth. The support for SMEs is vital for stabilising employment growth, given that SMEs provides 80% of employment. Improving income redistribution to reduce income inequality is also important. According to the National Bureau of Statistics, China’s income inequality – measured by the Gini coefficient – was officially a high 0.47 in 2012 after peaking at 0.49 in 2008. According to a survey by a think tank, the China Society of Economic Reform (CSER), the true picture is probably much worse once “grey income” is factored in. This inequality has a negative impact on consumption, not least because of the strong incentive for the poor to save because they lack sufficient social security. Income redistribution can be achieved through fiscal and tax reforms. This would help expand the emerging middle classes, which has topped 3m and is still rising. 7 abc Macro China Economics 26 September 2013 Consumer demand Supply-side reforms are also needed to unleash pent-up consumer demand, especially for services. These areas include: Information consumption: This is one of the hotspots on Beijing’s agenda for stimulating consumption (see China: Accelerating energy saving and IT infrastructure investment to support growth and restructuring, 15 July 2013). At the end of June 2013, China had the world’s largest netizen population – 591m – or nearly half the country’s population. Of these, 78.5% (464m) use mobile phones to access the internet, a 9ppt increase from the end of 2011. China’s e-commerce market was worth more than RMB8trn last year, with online shopping accounting for RMB1.3trn. The obstacle to further growth is underdeveloped infrastructure, such as the lack of equipment and internet connections (source: China Internet Network Information Centre). With China’s spending on information and communication technology per capita trailing developed countries like the US and Japan, the State Council has called for efforts to upgrade the IT infrastructure network. Beijing policy makers expect +20% annual growth in information consumption, which would give the market a value of RMB3.2trn by 2015. Elderly and healthcare. China is aging fast, with 194m citizens older than 60 in 2012, or 14.3% of the population. This number is likely to rise to 379m in 2030, or around 26% of the population, according to UN projections. China also has the biggest number of disabled people and “advanced elderly” who need special care in the world. The one-child policy only exacerbates matters; couples who are the only children have to support four parents and even more grandparents (Chinese traditionally 8 rely on children for elderly care). Elderly care services are still at the early stage of development and medical resources are limited. Beijing has stressed the need to speed up the development of old-age services, which could encourage consumer demand. Recreation and culture services: China is a net importer of services (e.g. Hollywood films are big hits at the country’s booming cinemas) and China’s tourists are the world’s top spenders overseas (according to United Nation’s World Tourism Organisation). This reflects the supply-side constraints and underdevelopment of China’s recreation and culture services sectors. Demand is only going to grow as income increases (chart 7). We expect reforms to encourage more private capital to enter areas still highly regulated or dominated by state-owned companies (the film import and censorship for example, though the country’s top media regulator eased the rules in July). This should boost growth in culture-related industries, which increased 16.5% y-o-y and contributed 5.5% of the GDP in 2012. Chart 7. More recreational spending as people get richer Recreation as % of consumption 16% 14% 12% 10% 8% 6% 4% 2% 0% China 0 20,000 40,000 60,000 80,000 Per capita GDP, USD Source: United Nations, Chinese Statics Yearbook, Ministry of Culture, HSBC Urbanisation: Urbanisation should continue to drive consumption. As migrant workers move into higher-productivity jobs, they are likely to spend more on housing, eating and Macro China Economics 26 September 2013 abc services as they settle permanently in cities. We expect 260m rural migrant workers to be transformed into “urban man”, with an incremental 360m migrant workers moving to cities during 2013-30 (see China Inside Out: Hey, 260m new spenders, July 2013). The key to making urbanisation a success is reforming the hukou household registration to give migrant workers the same rights as urban residents and changing the system of rural land tenure that limits migrant workers’ rights. This will be expensive. To provide public housing and education for the expected 260m migrant workers in the cities, it would cost local and central governments around RMB6.24trn, equivalent to 53% of China’s national fiscal revenue in 2012. This would require a more balanced distribution of the fiscal burden between the central government and local government. 9 abc Macro China Economics 26 September 2013 This page has been left blank intentionally. 10 Macro China Economics 26 September 2013 abc Charts 11 abc Macro China Economics 26 September 2013 GDP China’s economy is bottoming out from 7.5% y-o-y in 2Q13 as the recent positive data flows suggest improving demand conditions 3Q GDP growth is likely to top 7.8% y-o-y as indicated by the continuous rebound of HSBC China flash manufacturing PMI We expect a more sustained growth recovery in the coming quarters thanks to further filtering-through of fine-tuning policy and reform measures 1. Long-term real GDP trend 2. OECD leading index versus China real GDP 18 12 15 8 12 4 9 0 6 -4 3 -8 0 -12 02 03 04 05 06 07 08 09 10 11 12 13 %YoY %y oy %y oy 14 13 12 11 10 9 8 7 6 00 01 02 03 04 05 06 07 08 09 10 11 12 13 OECD leading (LHS) Real GDP (RHS) SAAR Source: CEIC, HSBC Source: CEIC, HSBC 3. Service and manufacturing PMI 4. Economic leading indicator versus business climate change % y oy 12 60 9 20 55 6 10 50 3 0 45 0 -10 40 -3 -20 35 -6 08 09 10 PMI - serv ice Source: CEIC, HSBC 12 % y oy 65 11 12 13 PMI - mfg 30 -30 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Economic leading indicator (LHS) Business climate index (RHS) Source: CEIC, HSBC abc Macro China Economics 26 September 2013 5. GDP, by region (nominal GDP, weighted) 6. GDP, by industry YTD, %y oy 17 21 15 18 13 15 11 12 YTD, %y oy 9 9 6 7 3 5 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 0 Bohai YRD 93 PRD 95 97 99 Primary Source: CEIC, HSBC Source: CEIC, HSBC 7. Industrial production 8. Commodity production % y oy , 3mma 21 40 18 01 03 05 Secondary 07 09 11 13 Tertiary % y oy , 3mma 30 15 20 12 10 9 6 0 3 -10 01 02 03 04 05 06 07 08 09 10 11 12 13 01 02 03 04 05 06 07 08 09 10 11 12 13 Coal production Electricity production VAI Source: CEIC, HSBC Source: CEIC, HSBC 9. Construction sector 10. Confidence indices RMB bn 3,000 %y oy 2,500 30 25 2,000 65 110 105 60 100 20 1,500 1,000 500 0 07 08 09 10 11 Construction output v alue Source: CEIC, HSBC 12 13 %y oy 95 15 90 10 85 55 50 02 03 04 05 06 07 08 09 10 11 12 13 Consumer confidence (LHS) Future income confidence (RHS) Source: CEIC, HSBC 13 abc Macro China Economics 26 September 2013 Industrial production Industrial production growth exceeded expectations by a wide margin, up to a 17-month high of 10.4% y-o-y in August A faster growth of electricity and heat power supply, transportation equipment, electric machinery equipment production plus the lower base effect, led to the upside surprise The improvement both in official and HSBC PMIs suggests that industrial output growth could find a firmer footing in the coming months 1. Industrial production vs GDP 21 19 17 15 13 11 9 7 5 2. Industrial production growth trend %y oy %y oy 16 20 %y oy , 3mma %mom, 3mma 3 14 12 10 2 15 1 0 10 8 6 -1 5 IP(LHS) -2 00 01 02 03 04 05 06 07 08 09 10 11 12 13 01 02 03 04 05 06 07 08 09 10 11 12 13 %YoY GDP (RHS) SA, %MoM Source: CEIC, HSBC Source: CEIC, HSBC 3. Industrial production vs manufacturing PMI 4. Electricity production changes together with IP %y oy , 3mma 21 19 17 15 13 11 9 7 5 % 65 60 55 50 25 % y oy , 3mma % y oy , 3mma 40 30 20 20 15 10 45 40 35 05 06 07 08 IP (LHS) Source: CEIC, HSBC 14 4 09 10 11 12 13 Mfg PMI (RHS) 0 10 -10 -20 5 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 IP Source: CEIC, HSBC Electricity production abc Macro China Economics 26 September 2013 5. GDP, by region (nominal GDP, weighted) 6. GDP, by industry % y oy , 3mma 24 % y oy , 3mma 25 20 19 15 14 10 5 9 0 4 01 02 03 04 05 06 07 08 09 10 11 12 13 01 02 03 04 05 06 07 08 09 10 11 12 13 Light industry Heav y industry SOE Share holding enterprise Source: CEIC, HSBC Source: CEIC, HSBC 7. Manufacturing PMI breakdown 8. Industrial profit margin 70 10 60 8 50 6 Collectiv e ow nership Foreign funded % 4 40 2 30 05 06 07 08 PMI Index 09 10 11 Output 12 13 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Industrial enterprise: pre-tax profit margin New Orders Source: CEIC, HSBC Source: CEIC, HSBC 9. Mining, petroleum and natural gas extraction 10. Manufacturing production % y oy 30 25 20 15 10 5 0 -5 -10 % y oy 40 30 20 Coal mining & dressing Petroleum & natural gas ex traction Source: CEIC, HSBC Food Electric M&E Jul-13 Jul-12 Jan-13 Jul-11 Jan-12 Jul-10 Jan-11 Jul-09 Jan-10 Jan-09 Jul-08 Jul-07 Jan-08 0 Jan-07 Jul-13 Jan-13 Jul-12 Jul-11 Jan-12 Jul-10 Jan-11 Jul-09 Jan-10 Jul-08 Jan-09 Jul-07 Jan-08 Jan-07 10 Tex tile Transport'n equip Source: CEIC, HSBC 15 abc Macro China Economics 26 September 2013 Private consumption Retail sales growth edged up to 13.4% y-o-y in August from 13.2% y-o-y in July, with real growth rebounding to 11.6% y-o-y Consumption for apparel, home appliances, furniture and cosmetics accelerated, while sales in automobile and jewellery slowed down Consumer spending remains resilient and ongoing growth recovery is likely to support robust growth in the coming months 1. Retail sales trend 2. Consumer confidence 60 25 50 20 40 30 15 120 % 110 100 20 10 10 0 5 -10 90 80 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Consumer confidence Satisfactory index Ex pectation index 00 01 02 03 04 05 06 07 08 09 10 11 12 13 %YoY (LHS) SAAR, 3mma (RHS) Source: CEIC, HSBC Source: CEIC, HSBC 3. Confidence in income 4. Confidence in prices 65 90 60 70 55 50 50 30 45 10 01 02 03 04 05 06 07 08 09 10 11 12 13 % 01 02 03 04 05 06 07 08 09 10 11 12 13 Current price satisfaction Future price ex pectation Current income sentiment Future income confidence Source: CEIC, HSBC 16 Source: CEIC, HSBC abc Macro China Economics 26 September 2013 5. Retail sales, by sector 6. Retail sales in urban vs rural areas % y oy 27 24 % y oy 27 24 21 18 21 15 12 18 9 6 12 15 9 06 07 08 09 10 11 12 13 06 07 08 Wholesale & Retail Trade Accommodation & Catering Trade 09 10 11 12 Urban 13 Rural Source: CEIC, HSBC Source: CEIC, HSBC 7. Per-capita income vs expenditure – Urban households 8. Per-capita income vs expenditure – Rural households per capita, % y oy 25 30 per capita, % y oy 25 20 20 15 15 10 10 5 5 0 0 03 04 05 06 07 08 09 10 11 Income Disposable income Consumption ex penditure 12 13 -5 02 03 04 05 06 07 08 09 10 11 12 13 Cash Income Cash consumption ex penditure Source: CEIC, HSBC Source: CEIC, HSBC 9. Expenditure, by product – Urban households 10. Expenditure, by product – Rural households %y oy 30 25 %y oy 40 30 20 15 20 10 5 10 0 0 -5 -10 03 04 05 06 07 Food & housing Transport & telecom Source: CEIC, HSBC 08 09 10 11 12 13 Clothing Serv ice & others 03 04 05 06 07 Food & housing Transport & telecom 08 09 10 11 12 13 Clothing Serv ice & others Source: CEIC, HSBC 17 abc Macro China Economics 26 September 2013 Fixed investment Fixed asset investment (FAI) growth accelerated to 20.3% y-o-y in the first eight months, and August FAI growth rebounded to 21.4% y-o-y from 20.2% y-o-y in July Infrastructure investment expanded 29.3% y-o-y in August, which was the main driver behind the FAI acceleration The pick-up in local level investments has fully offset the slowdown in central government-backed investment 1. FAI growth 2. FAI, by enterprise ownership 38 y td, %y oy 70 60 50 40 30 20 10 0 -10 33 28 23 18 05 06 07 08 09 10 y td, %y oy 11 12 05 13 06 07 08 09 SOE Priv ate enterprise 10 11 12 13 Shareholding Foreign fund Source: CEIC, HSBC Source: CEIC, HSBC 3. Construction vs equipment purchase 4. Number of projects started and under construction y td, %y oy 40 35 40 30 20 25 0 20 -20 05 06 Source: CEIC, HSBC 18 y td, %y oy 60 07 08 09 10 11 12 Construction and installation Equipment purchase 13 05 06 07 08 Under construction Source: CEIC, HSBC 09 10 11 12 13 New ly Started abc Macro China Economics 26 September 2013 5. FAI, by work type 6. FAI in mining sector y td, %y oy 70 y td, %y oy 150 60 50 100 40 30 50 20 10 0 0 05 06 07 08 09 New Construction Transformation 10 05 11 12 13 Ex pansion 06 07 08 09 10 Coal Non metal 11 Source: CEIC, HSBC 7. FAI in manufacturing sectors 8. FAI in construction, real estate and transport y td, %y oy y td, % y oy 100 80 80 60 60 40 40 13 Ferrous metal Electricity & heating Source: CEIC, HSBC 100 12 20 20 0 0 -20 -20 -40 05 06 07 08 09 10 Chemical Tex tile 11 12 13 Non metal mineral Electric M&E 05 06 07 Real estate 08 09 Source: CEIC, HSBC 9. FAI, by infrastructure project 10. FAI, by source of financing 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% 04 05 06 07 Railw ay Urban public transit Air Source: CEIC, HSBC 08 09 10 11 12 Highw ay Waterw ay 13 12 13 Transport 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-13 Jul-13 100% 11 Construction Source: CEIC, HSBC 100% 10 State budget Foreign capital Domestic loan Self raised Source: CEIC, HSBC 19 abc Macro China Economics 26 September 2013 Trade China's export growth rebounded to 7.1%y-o-y in August, from July's 5.1% y-o-y and 2Q’s 3.7% y-o-y, reflecting the gradual improvement of external demand conditions Import growth expanded by 7% y-o-y in August, compared with July’s 10.8% y-o-y and 2Q’s 5% y-o-y, signalling a modest rebound in China's domestic demand conditions New export orders bounced back into expansion territory in September’s HSBC flash PMI, a sign of additional improvement of external demand -20 -40 -40 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Trade balance (RHS) Ex port (LHS) Import (LHS) Ex port (SA) Source: CEIC, HSBC Source: CEIC, HSBC 3. Exports to G3 and ROW 4. Imports from G3 and ROW %y oy , 3mma 50 40 30 20 10 0 -10 -20 -30 96 98 00 100 80 60 40 20 0 -20 -40 -60 02 Ex port to G3 Source: CEIC, HSBC 20 04 06 08 10 12 Ex port to ROW Jul-13 0 -20 Jan-13 0 20 Jul-12 20 40 %mom, 3mma 25 20 15 10 5 0 -5 -10 -15 Jan-12 60 40 Jul-11 USD bn Jan-11 %y oy , 3mma Jul-10 80 2. Sequential growth in exports and imports Jan-10 1. Overall external trade trend Imports (SA) % y oy , 3mma 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Import from G3 Source: CEIC, HSBC Import from ROW abc Macro China Economics 26 September 2013 5. Taiwan’s new export orders as a leading indicator 60 6. PMI new export orders vs exports % y oy , 3mma 20 %mom, 3mma Pts 60 15 40 55 10 20 5 0 0 50 -5 -20 45 -10 -40 -15 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Ex port Taiw an's new ex port orders 40 10 11 Ex port (SA, LHS) Source: CEIC, HSBC Source: CEIC, HSBC 7. Exports – ordinary vs processing trade 8. Trade price index % y oy 100 12 13 PMI new ex port orders (RHS) % y oy 90 80 60 40 40 20 -10 0 -20 -60 -40 06 06 07 08 09 10 Ex port - Ordinary trade 07 08 11 12 13 Ex port - Processing 09 Source: CEIC, HSBC Source: CEIC, HSBC 9. Exports, by major commodity 10. Imports, by major commodity % y oy 120 90 10 11 12 13 12 13 Ex port trade index v alue Import trade index v alue % y oy , 3mma 80 60 30 0 60 -30 -60 20 40 0 06 07 Source: CEIC, HSBC 08 09 10 11 12 Mineral fuel, lubricants & material Manufactured goods Machiery & transport equipment Misc. mfg articles 13 -20 06 07 08 Iron ore 09 10 11 Crude petroleum oil Source: CEIC, HSBC 21 abc Macro China Economics 26 September 2013 Prices Headline CPI edged down from 2.7% y-o-y in July to 2.6% in August, in line with market and HSBC expectations Food price growth slowed down to 4.7% y-o-y as the deceleration in prices of grain and fresh vegetables offset the rise in meat and poultry prices; non-food price inflation edged down to 1.5% y-o-y Inflationary pressures remain modest thanks to the still below- potential growth and limited upstream price pressures 1. Consumer price trend 10 %y oy 2. CPI, by major segment %mom, 3mma 2.0 25 1.5 20 1.0 15 0.5 10 0.0 5 -2 -0.5 0 -4 -1.0 -5 8 6 4 2 0 %y oy 06 01 02 03 04 05 06 07 08 09 10 11 12 13 YOY (LHS) MOM (RHS) 07 08 Ov erall Source: CEIC, HSBC Source: CEIC, HSBC 3. Urban vs rural inflation 4. Producer price index 10 %y oy 15 8 10 Core 11 12 13 Food %mom, 3mma 10 6 1.5 0.5 5 4 -0.5 2 0 0 -1.5 -5 -2 -4 -10 01 02 03 04 05 06 07 08 09 10 11 12 13 Urban Source: CEIC, HSBC 22 %y oy 09 Rural -2.5 03 04 05 06 07 08 09 10 11 12 13 YOY (LHS) MOM (RHS) Source: CEIC, HSBC abc Macro China Economics 26 September 2013 5. PPI, by industry (1) 15 6. PPI, by industry (2) %y oy %y oy 15 10 10 5 5 0 0 -5 -10 -5 -15 -10 01 02 03 04 05 06 07 08 09 10 11 12 13 Producer goods Consumer goods 01 02 03 04 05 06 07 08 09 10 11 12 13 Light industry Heav y industry Source: CEIC, HSBC Source: CEIC, HSBC 7. Purchase and output prices 8. Fixed asset investment price index % y oy 20 15 10 5 0 -5 -10 -15 20 % y oy 15 10 5 0 -5 -10 01 02 03 04 05 06 07 08 09 10 11 12 13 05 PPI Corporate goods price index Purchasing price index - raw materials 06 07 Source: CEIC, HSBC Source: CEIC, HSBC 9. Petroleum prices 10. Property prices % y oy 180 150 120 90 60 30 0 -30 -60 08 Ov erall index Construct'n & install'n 35 09 10 11 12 13 Equip, tool & instrum't % y oy 25 15 5 -5 05 06 Source: CEIC, HSBC 07 08 09 10 11 12 PPI - petroleum and natural gas Import v alue index - petroleum 13 -15 01 02 03 04 05 06 07 08 09 10 11 12 13 Residential property price Source: CEIC, HSBC 23 abc Macro China Economics 26 September 2013 Commodity prices The PPI contraction narrowed to -1.6% y-o-y in August, compared to -2.3% y-o-y in July. On a sequential basis, PPI recorded its first positive sequential expansion (0.1% m-o-m) since March Input prices of fuel, ferrous metals, non-ferrous metals and construction materials all witnessed smaller contractions We believe that PPI is bottoming out with the improvement in overall demand conditions 1. Wholesale price: Whorl steel 2. Wholesale price: Electrolysed copper 6,000 80,000 RMB / Ton RMB / Ton 70,000 5,500 60,000 5,000 50,000 4,500 40,000 4,000 30,000 3,500 20,000 3,000 10,000 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 13 13 Source: CEIC, HSBC Source: CEIC, HSBC 3. Wholesale price: Aluminium 4. Wholesale price: Lead 23,000 26,000 RMB / Ton 21,000 22,000 19,000 18,000 17,000 15,000 14,000 13,000 11,000 10,000 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: CEIC, HSBC 24 RMB / Ton 06 Source: CEIC, HSBC 07 08 09 10 11 12 13 abc Macro China Economics 26 September 2013 5. Wholesale price: Zinc 36,000 RMB / Ton 6. Wholesale price: Nickel 450,000 32,000 400,000 28,000 350,000 RMB / Ton 300,000 24,000 250,000 20,000 200,000 16,000 150,000 12,000 100,000 8,000 50,000 01 02 03 04 05 06 07 08 09 10 11 12 13 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: CEIC, HSBC Source: CEIC, HSBC 7. Wholesale price: Diesel oil 8. Wholesale price: Gasoline 10,000 RMB / Ton 11,000 RMB / Ton 9,000 10,000 8,000 9,000 7,000 8,000 6,000 7,000 5,000 6,000 4,000 5,000 3,000 4,000 2,000 3,000 01 02 03 04 05 06 07 08 09 10 11 12 13 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: CEIC, HSBC Source: CEIC, HSBC 9. Retail price: Rice 10. Retail price: Flour 6.0 4.75 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 RMB / Kg 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: CEIC, HSBC RMB / Kg 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: CEIC, HSBC 25 abc Macro China Economics 26 September 2013 Money and credit growth August new lending recorded a slight pick-up to RMB 711.3bn from RMB699.9bn in July. The medium and long-term corporate loans remained resilient September M2 and M1 grew 14.7% y-o-y and 9.9% y-o-y, respectively reflecting the temporary improvement in liquidity conditions Total social financing shot up to RMB 1,570bn due to unexpected increase in entrusted loans and bankers’ acceptance bills 40 35 30 25 20 15 10 5 0 -5 Deposit Loan Household deposit Source: CEIC, HSBC Source: CEIC, HSBC 3. FAI vs loan growth 4. New renminbi loans 15 5 04 05 06 07 Loan Source: CEIC, HSBC 26 08 09 10 11 12 Medium & long term Short term and bill financing New loan 13 FAI Source: CEIC, HSBC Jul-13 Jan-08 25 Jul-12 35 New RMB loan Jul-09 45 RMB bn Jan-09 2100 1800 1500 1200 900 600 300 0 -300 Jul-08 %y oy 55 Loan Jan-13 M2 Jul-11 M1 01 02 03 04 05 06 07 08 09 10 11 12 13 Jan-12 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 %y oy Jul-10 %y oy Jan-11 40 35 30 25 20 15 10 5 0 2. Deposits vs loan growth Jan-10 1. Loans vs money supply abc Macro China Economics 26 September 2013 5. PBoC open market operations 6. Consumer credit RMB bn 2,500 2,000 1,500 1,000 500 0 -500 -1,000 -1,500 -2,000 %y oy 70 60 50 40 30 20 Liquidity withdrawal Consumer loan Source: Wind, HSBC (Data up to 25 September 2013) Source: CEIC, HSBC 7. Loan-to-deposit ratio 8. Money supply vs price level 95 % % y oy 50 90 Loan % y oy 80 30 75 20 70 6 4 2 10 65 0 0 60 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Loan-to-deposit ratio -2 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 M1 (LHS) Source: CEIC, HSBC Source: CEIC, HSBC 9. M1-M2 gap vs CPI 10. Foreign reserves % y oy % y oy 10 10 8 5 6 0 4 -5 2 -10 0 -15 -2 01 02 03 04 05 06 07 08 09 10 11 12 13 M1-M2 gap (LHS) CPI (RHS) Source: CEIC, HSBC 10 8 40 85 15 Jan-13 13 Jan-12 Liquidity injection Net position 12 Jan-11 11 Jan-10 10 Jan-09 09 Jan-08 10 CPI (Lag by 6 months, RHS) 4,000 50 3,000 40 30 2,000 20 1,000 10 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 USD bn (LHS) %YoY (RHS) Source: CEIC, HSBC 27 abc Macro China Economics 26 September 2013 Interest and exchange rates The PBoC removed the floor on lending rates (at 70% of the benchmark rate) on 20 July; this should help lower borrowing costs over time, yet the immediate impact is likely to be marginal Widening the floating range of deposit rates could be the next move, but this requires the introduction of deposit insurance first HSBC FX strategists have lowered their USD-CNY forecasts for 2013 and 2014 to 6.12 and 6.10 respectively, given the recent uptick in China economic data and a delay in Fed QE tapering 1. Lending vs savings rates 8 7 6 5 2. Required reserve ratio % p.a. % 27 22 17 4 3 2 1 0 12 7 06 07 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1Y lending rate 1Y deposit rate 08 09 10 11 12 13 RRR Large depository institution Small and medium depository institution Source: CEIC, HSBC Source: CEIC, HSBC 3. PBoC bill issuance and reference yield 4. Interbank rate RMB bn 1,000 % p.a. 800 3 600 2 400 1 200 0 0 05 06 07 08 09 10 11 12 PBoC total bill issuance (LHS) 3M PBoC bill issuance ref. y ld (RHS) Source: CEIC, HSBC 28 4 13 % p.a. 8 7 6 5 4 3 2 1 0 06 07 08 09 3M SHIBOR Source: CEIC, HSBC 10 11 12 13 3M CHIBOR abc Macro China Economics 26 September 2013 5. Bond yields 6. Mortgage rate % p.a. 5 % p.a. 5.5 4 5.0 3 4.5 2 4.0 1 3.5 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 0 3.0 02 03 04 05 06 07 08 09 10 11 12 13 5 Yr or Less Ov er 5 Yr 1Y treasury bond y ield 1Y Policy financial bond y ield Source: CEIC, HSBC Source: CEIC, HSBC 7. Distribution of actual lending rate 8. Foreign exchange rate % 100 12 RMB 11 80 As Benchmark 10-30% abov e Jul-13 Jan-13 Jul-12 Jul-11 10% below 30-100% abov e Jan-12 Jan-11 7 Jul-10 8 0 Jan-10 20 Jul-09 9 Jan-09 40 Jul-08 10 Jan-08 60 6 03 10% abov e 04 05 06 07 RMB/USD Source: CEIC, HSBC Source: CEIC, HSBC 9. RMB spot vs forward rate 10. Effective exchange rate 6.95 RMB/USD 6.75 6.55 6.35 Spot Source: CEIC, HSBC Jan-13 May-13 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-10 May-10 Sep-10 Jan-11 Jan-09 May-09 Sep-09 6.15 25 20 15 10 5 0 -5 -10 -15 08 09 10 RMB/JPY100 11 12 13 RMB/EUR %y oy 96 98 12M NDF 00 02 REER 04 06 08 10 12 NEER Source: CEIC, HSBC 29 abc Macro China Economics 26 September 2013 Employment and income China created 7.25m new jobs in 1H13 (vs. a target of 9m for 2013); the official urban registered unemployment rate remained unchanged at 4.1% in 1H13 Household income growth remained steady in 1H13; the income of rural households rose 9.2% y-o-y in real terms compared with 6.5% y-o-y for urban households Labour market is gradually on the mend, as employment sub- indices of HSBC PMIs improved over the past few months 2. Creation of jobs %y r 14 % 4.4 4.3 12 4.2 10 4.1 8 4.0 6 3.9 05 06 07 GDP (LHS) 08 09 10 11 12 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 '000 person (YTD) % 11 9 7 5 13 Urban new jobs (LHS) Urban unemploy ment rate (RHS) GDP (RHS) Source: CEIC, HSBC Source: CEIC, HSBC 3. Employment, by major industry 4. Real household income per capita 800 mil person 18 600 13 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 1. Economic growth vs unemployment YTD, %y oy 13 400 8 200 3 0 2003 Primary Source: CEIC, HSBC 30 2005 2007 2009 Secondary 2011 2013 06 07 Tertiary 08 Urban Source: CEIC, HSBC 09 10 11 12 Rural 13 abc Macro China Economics 26 September 2013 5. Economic growth vs real wage growth 6. Average wage growth %y oy 20 YTD, %y oy 20 15 16 10 12 5 8 02 03 04 05 06 07 08 09 10 11 12 13 02 03 04 05 06 07 08 09 10 11 12 13 Real av erage w age grow th (YTD) GDP Nominal Source: CEIC, HSBC Source: CEIC, HSBC 7. Wage growth, by enterprise 8. Wage growth, by region YTD, %y oy YTD, %y oy 25 20 20 15 15 10 10 SOE Collectiv e ow ned units Eastern Others Central Source: CEIC, HSBC Source: CEIC, HSBC 9. Household income distribution – Urban 10. Household income distribution – Rural 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% 2006 <RMB25k Source: CEIC, HSBC 2007 2008 RMB25-55K 2009 RMB55-85K 2010 2011 >RMB85K 2006 <RMB1K 2007 RMB1-2.5K 2008 Sep-09 Dec-08 Mar-08 13 Jun-07 12 Sep-06 11 Dec-05 10 Mar-05 09 Jun-04 08 Sep-03 07 Mar-02 5 5 Dec-02 25 Real Central 2009 RMB2.5-5K 2010 RMB>5K Source: CEIC, HSBC 31 abc Macro China Economics 26 September 2013 Asset markets Property prices maintained its uptrend in y-o-y terms, while transactions slowed in August The approval of refinancing plans of real estate firms may facilitate the development of the property market, despite many existing curbs HSBC's equity strategy team lowered its year-end 2013 index target for SHCOMP to 2,100 from 2,300 on 5 July, as slower growth could continue to add downside risks to earnings 1. Stock indices 2. Stock index vs money supply 6,000 250 5,000 200 4,000 150 %y oy %y oy 100 3,000 50 2,000 0 1,000 -50 0 -100 949596 97989900 01020304 0506070809 10111213 Shanghai (SSE) 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 SSE index (LHS) M1 (RHS) Shenzhen (SZSE) Source: CEIC, HSBC Source: CEIC, HSBC 3. Price-to-earnings ratio 4. Market capitalisation, by stock exchange 80 % 50,000 70 RMB bn 40,000 60 50 30,000 40 20,000 30 10,000 20 - 10 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 SSE Source: CEIC, HSBC 32 40 35 30 25 20 15 10 5 0 06 SZSE 07 08 SSE Source: CEIC, HSBC 09 10 11 12 SZSE 13 abc Macro China Economics 26 September 2013 5. Capital raised, by stock exchange 6. Real estate index RMB bn 160 2000=100 108 106 120 104 102 80 100 40 98 0 96 07 08 09 10 11 12 94 13 04 SSE 05 06 SZSE 07 08 09 10 11 Real estate climate index Source: CEIC, HSBC Source: CEIC, HSBC 7. Property prices 8. Property sales vs money supply % y oy % y oy 140 120 100 80 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 Jan-13 Jul-13 14 12 10 8 6 4 2 0 -2 -4 % y oy 30 20 10 0 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Property sales (YTD, LHS) M1 (RHS) Source: CEIC, HSBC 9. Property prices vs money supply 10. Property investment vs property started % mom, 3mma 1.5 1.0 0.5 4 80 3 60 2 40 1 20 0 -1 -0.5 -2 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 Jan-13 Jul-13 0.0 Property price index (LHS) Source: CEIC, HSBC M1 (SA, RHS) 50 40 Source: CEIC, HSBC % mom 13 60 40 20 0 -20 Property price index 2.0 12 YTD, % y oy 0 -20 -40 05 06 07 08 09 Property inv estment 10 11 12 13 Floor space started Source: CEIC, HSBC 33 abc Macro China Economics 26 September 2013 This page has been left blank intentionally. 34 Macro China Economics 26 September 2013 abc Data and forecasts 35 abc Macro China Economics 26 September 2013 China Production, demand and employment GDP growth (% y-o-y) Nominal GDP (USDbn) GDP per capita (USD) Retail sales (% y-o-y) Fixed Asset Investment (nominal, % y-o-y) Industrial production (% y-o-y) Gross domestic saving (% GDP) Unemployment rate, average (%) Prices & wages CPI, average (% y-o-y) CPI, year-end (% y-o-y) Core CPI, average (% y-o-y) Core CPI, year-end (% y-o-y) PPI, average (% y-o-y) PPI, year-end (% y-o-y) Manufacturing wages, nominal (% y-o-y) Money, FX & interest rates Central bank money M0, average (% y-o-y) Broad money supply M2, average (% y-o-y) Policy rate, year-end (%) 5yr yield, year-end (%) Real private sector credit growth (% Yr) RMB /USD, year-end RMB /USD, average RMB /EUR, year-end RMB /EUR, average External sector Merchandise exports (USDbn) Merchandise imports (USDbn) Trade balance (USDbn) Current account balance (USDbn) Current account balance (% GDP) Net FDI (USDbn) Net FDI (% GDP) Current account balance plus FDI (% GDP) Exports, value (% y-o-y) Imports, value (% y-o-y) International FX reserves (USDbn) Import cover (months) Public and external solvency indicators Commercial banks’ FX assets (USDbn) Gross external debt (USDbn) Gross external debt (% GDP) Short term external debt (% of int’l reserves) Consolidated government balance (% GDP) Public Sector Debt (% GDP) Macro-prudential indicators Capital adequacy ratio Non-performing loan ratio Household Debt/ GDP (%) Total Credit/GDP (%) Residential House prices (% y-o-y) Loan/Deposit ratio Stock market capitalisation/GDP (%) 2008 2009 2010 2011 2012 2013f 2014f 9.6 4,535 3,432 21.6 26.1 12.9 51.4 4.2 9.2 4,990 3,758 15.5 30.5 12.9 51.8 4.3 10.4 5,938 4,428 18.5 24.5 15.7 52.6 4.1 9.3 7,320 5,431 17.1 23.8 13.9 51.5 4.3 7.7 8,283 6,115 14.3 20.6 10.0 51.0 4.1 7.7 9,290 6,825 12.5 20.5 9.6 51 4.3 7.4 10,360 7,573 12.0 19.0 9.4 50.5 4.4 5.9 1.2 0.9 -0.4 6.9 -1.1 15.8 -0.7 1.9 -1.1 0 -5.4 1.7 9 3.3 4.6 0.9 1.7 5.5 5.9 13 5.4 4.1 2.2 1.6 6.1 1.7 13 2.7 2.5 1.5 1.6 -1.7 1.9 13.0 2.6 2.7 1.7 1.5 -1.5 0.1 12.5 2.7 2.4 1.7 1.5 0.7 1.2 12.0 12.4 16.7 5.31 5.76 15 6.82 6.93 9.48 10.08 12.1 26.5 5.31 5.76 13 6.83 6.83 9.77 9.55 14.9 23.7 5.81 6.16 15.5 6.62 6.76 8.81 8.97 16 14.7 6.56 6.85 13.7 6.3 6.46 8.16 9.00 9.5 13.4 6.00 6.40 12.5 6.23 6.27 8.22 8.19 13 13.9 6.00 6.40 14 6.12 6.18 7.59 7.91 13 13.5 6.00 6.40 14 6.10 6.11 7.44 7.52 1,429 1,133.10 295.5 426 9.4 108.3 2.4 11.8 17.2 18.5 1,946 18.9 1,202 1,005.60 196.1 284 5.7 90 1.8 7.5 -15.9 -11.3 2,399 27.9 1,578 1,394 184.5 250 4.2 105.8 1.8 6.0 31.4 38.6 2,850 24.8 1,899 1,741 157.9 201.1 2.7 116 1.6 4.3 20.3 24.9 3,181 23.1 2,049 1,816 233.0 193 2.3 111.7 1.4 3.7 7.9 4.3 3,312 20.6 2233 1965 269 215 2.3 121 1.3 3.6 9.0 8.2 3,650 22.0 2457 2122 335 265 2.6 132 1.3 3.8 10.0 8.0 3,650 21.4 181.3 390.2 8.6 11.6 -0.4 34.5 115.3 428.6 8.6 10.8 -2.2 44.0 128.1 548.9 9.3 13.2 -2.5 43.4 147.5 653.9 9.2 15.0 -2 38.9 167.3 885.0 10.7 19.7 -1.5 38.7 186.7 1025.0 11.0 20.6 -2.1 37.8 207.5 1165.0 11.2 23.3 -1.8 36.7 12 2.4 11.8 96.6 -1.7 65.1 38.6 11.4 1.6 16.2 117.2 23.2 66.9 71.6 12.2 1.1 18.9 120.4 7.4 66.7 66.7 12.7 1.0 18.8 115.8 -0.7 68.0 45.4 13 1.0 20.1 121.3 8.7 69.0 44.4 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Note: Industrial production is the output of all industrial companies with annual sales over RMB20m. Source: CEIC, IMF, ADB, HSBC estimates 36 Macro China Economics 26 September 2013 abc Notes 37 Macro China Economics 26 September 2013 abc Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Hongbin Qu and Jun Wei Sun Important Disclosures This document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not for publication to other persons, whether through the press or by other means. 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MICA (P) 118/04/2013, MICA (P) 068/04/2013 and MICA (P) 110/01/2013 [387738] 39 abc Global Economics Research Team Global Stephen King Global Head of Economics +44 20 7991 6700 [email protected] Karen Ward Senior Global Economist +44 20 7991 3692 [email protected] Europe & United Kingdom Janet Henry Chief European Economist +44 20 7991 6711 [email protected] Simon Wells Chief UK Economist +44 20 7991 6718 [email protected] Julia Wang +852 2822 4687 [email protected] Global Emerging Markets Pablo Goldberg Head of Global EM Research +1 212 525 8729 [email protected] Bertrand Delgado EM Strategist +1 212 525 0745 [email protected] Emerging Europe and Sub-Saharan Africa Murat Ulgen Chief Economist, Central & Eastern Europe and sub-Saharan Africa +44 20 7991 6782 [email protected] Alexander Morozov Chief Economist, Russia and CIS +7 495 783 8855 [email protected] Matteo Cominetta +44 20 7991 6708 [email protected] John Zhu +44 20 7991 2170 [email protected] Germany Stefan Schilbe +49 211910 3137 Artem Biryukov Economist, Russia and CIS +7 495 721 1515 [email protected] [email protected] Rainer Sartoris +49 211910 2470 Agata Urbanska Economist, CEE +44 20 7992 2774 [email protected] [email protected] France Mathilde Lemoine +33 1 4070 3266 Melis Metiner Economist, Turkey +90 212 376 4618 [email protected] [email protected] Francois Letondu +33 1 4070 3933 [email protected] David Faulkner Economist, South Africa +27 11 676 4569 [email protected] North America Kevin Logan Chief US Economist +1 212 525 3195 [email protected] Ryan Wang +1 212 525 3181 David G Watt +1 416 868 8130 [email protected] [email protected] Asia Pacific Qu Hongbin Managing Director, Co-head Asian Economics Research and Chief Economist Greater China +852 2822 2025 [email protected] Frederic Neumann Managing Director, Co-head Asian Economics Research +852 2822 4556 [email protected] Leif Eskesen Chief Economist, India & ASEAN +65 6658 8962 [email protected] Paul Bloxham Chief Economist, Australia and New Zealand +612 9255 2635 [email protected] Adam Richardson +612 9006 5848 Trinh Nguyen +852 2996 6975 [email protected] [email protected] Ronald Man +852 2996 6743 [email protected] Sun Junwei +86 10 5999 8234 [email protected] Sophia Ma +86 10 5999 8232 [email protected] Su Sian Lim +65 6658 8963 [email protected] Izumi Devalier +852 2822 1647 [email protected] Middle East and North Africa Simon Williams Chief Economist +971 4 423 6925 [email protected] Liz Martins Senior Economist +971 4 423 6928 [email protected] Latin America Andre Loes Chief Economist, Latin America +55 11 3371 8184 [email protected] Argentina Javier Finkman Chief Economist, South America ex-Brazil +54 11 4344 8144 [email protected] Ramiro D Blazquez Senior Economist +54 11 4348 2616 [email protected] Jorge Morgenstern Senior Economist +54 11 4130 9229 [email protected] Brazil Constantin Jancso Senior Economist +55 11 3371 8183 [email protected] Priscila Godoy Economist +55 11 3847 5190 [email protected] Mexico Sergio Martin Chief Economist +52 55 5721 2164 [email protected] Central America Lorena Dominguez Economist +52 55 5721 2172 [email protected]
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