China economy back to same old investment story: ANZ

April 18, 2017

HONG KONG – ANZ Bank says the Chinese economy has returned to the investment driven growth model in recent months, with fixed asset investment (FAI) data soared 9.2% ytd y/y in March against market expectations of 8.8%. Of total FAI, 21% was derived from the property sector. “However, the headline GDP data still needs to be interpreted with caution,” says ANZ.

“Our model indicates that a 6.9% y/y growth should have corresponded to a sequential growth of 1.6% q/q sa. It seems to us that the statistical bureau has adopted a different set of seasonal adjustment factors and that a smaller q/q rate has resulted in a higher headline growth.
“We suggest a more detailed assessment of China’s economic conditions using a wider set of economic and financial statistics.”
ANZ says strong aggregate financing of CNY2.1 trillion in March (vs February’s CNY1.2 trillion)indicates a strong credit impulse and hence foretells robust economic growth.
“Medium- and long-term loan outstanding rose 19.6% y/y in Q1 2017, compared with 15.7% in Q1 2016. Medium- and long-term loans extended to corporates accounted for 63% of Q1’s new yuan loans, compared with 2016’s 33% and 2015’s 30%, indicating a strong investment pipeline in the near term,” ANZ says.
“The Chinese Government has a tendency to rely on infrastructure development to sustain growth in the long term.
“Last week’s announcement of establishing the Xiong’an New Economic Zone reflects the Government’s ambition to create domestic demand.
“The infrastructure build-out will eventually cover 2,000 sq km, a size similar to Shenzhen’s, a city with GDP equivalent to 2.6% of the national total in 2016. The scale will be massive.
“The question we need to ask is whether this investment-led model is sustainable as the authorities have trouble taming credit.
“Last year, total loans grew by 12.8%. Q1 has added another CNY4.2 trillion, equivalent to about 23.3% of Q1 GDP (or 5.8% of full year GDP on an annualised basis).
“We need to watch closely whether China’s top leadership will send a stronger signal to tighten monetary policy shortly.” (ATI).