Dear CBI Members, kindly find the latest economic summary from the British Embassy attached with highlights below.
China Direct would like to thank Henry Bell and Huang Zhenqian for sharing this with our members.
China Economic Focus Summary March 2012
- Premier Wen Jiabao set out a yearly growth target of 7.5 percent at the National People’s Congress, the lowest target since 2005. But most analysts believe that the growth will remain above 8 percent, consistent with a 'soft landing'.
- Macroeconomic data for the first two months of 2012 has been mixed, but the distortions caused by Chinese New Year make it hard to draw robust conclusions.
- Industrial production growth declined to 11.4 percent in January and February combined (on a year earlier), reaching a 29 month low. Fixed asset investment growth has slowed since mid 2011, reaching 21.5 percent in January and February. Growth of retail sales, a proxy for consumption, dropped to 14.7 percent in the first two months, compared with 18.1 percent in December. On the other hand, at 53.1, the official purchasing manager’s index was significantly stronger than expected.
- Inflation fell to 3.2 percent, well below the official target for 2012 of 4 percent. The slowdown was mainly driven by the food prices falling after the Chinese New Year. With inflation now under control and most economic data weaker than expected, the authorities have scope and incentive to introduce policies to support growth. Further cuts to the required reserve ratio are expected.
- Property prices remain flat or on downward trend. But the price falls so far have been moderate and the central authorities remain determined to bring prices down to 'a more reasonable level'.
- Both exports and imports rebounded in February but much of this can be explained by the effect of Chinese New Year in January. Overall, the trade picture in 2012 so far has been weak.
- The RMB remained stable in March. The authorities have recently indicated an appetite for currency reform. In the first instance, reform is likely to entail a widening of the daily trading band.
- There were not many surprises from the annual National People’s Congress meeting in March. The authorities emphasised expanding domestic (consumption) demand but there was little discussion of the structural reforms necessary to achieve this.