MONTREAL - The outlook for China's
economy, with the government recently forecasting
lower growth, has been muddied by conflicting data
including, most recently, an unexpected jump in
exports and mixed messages earlier this month from
manufacturers.
Increased demand in the
United States and Europe for Chinese-made goods
helped to drive China's trade balance into a
surplus in March after two months of deficit,
sufficient to produce a US$670 million trade
surplus for the first quarter.
The March
surplus of $5.35 billion came as exports rose 8.9%
from a year earlier to $165.7 billion, beating the
7% consensus expectation. At the same time,
China's demand for overseas
goods rose only 4.6%,
about half the 9% expected, and even then boosted
by record grain imports in March.
March
exports to the US were the highest so far this
year, while exports to Europe for the month were
above their January-February average, according to
Market News International. For the first quarter,
total trade turnover gained 7.3% on the 2011
period to $859.4 billion, according to data from
the General Administration of Customs.
Meanwhile, government efforts to rein in
inflation may be succeeding, with the producer
price index (PPI) easing 0.3%. The PPI decline,
the first in over two years, suggests that
"inflation is still on track to ease further, and
therefore is unlikely to become the major policy
concern in the near term", according to HSBC’s Qu
Hongbin.
In contrast, the March
consumer price index (CPI) rose a
more-than-expected 3.6%, with higher food prices
(particularly vegetables) the main driver along
with increased diesel prices, which added to
transportation costs and have still to be passed on fully to consumers.
The March CPI increase was up from
February's 3.2% year-on-year gain - the lowest
in 20 months -and above the 3.4%
consensus estimate from a Bloomberg News survey
of economists.
Authorities announced during
the National People's Congress last month that the
inflation target would remain approximately 4%,
compared with a 5.4% actual rate in 2011. Danske
Research argues that the current increase in CPI
inflation should "prove [to be] temporary", and
"the future path of monetary easing will largely
depend on the activity data in the coming months"
and will not be influenced by inflation fears.
Earlier readings in the two benchmark
purchasing managers' indexes (PMIs), which
register the country's manufacturing activity,
also carried conflicting messages.
The
official PMI, compiled by the China Federation of
Logistics and Purchasing (CFLP), unexpectedly
jumped 2.1 points to 53.1, the highest level in a
year and the fourth consecutive rise. A reading
above 50 indicates economic expansion, while below
50 signals contraction. The consensus expectation
had been that the March reading would have
difficulty staying above 51.
Bank of China
chief economist Cao Yuanzheng told China Daily
that the faster than expected export growth may
support a second-quarter rebound in gross domestic
product (GDP) from the 8.2% rate expected for the
first quarter, which would be the lowest in two
years. Cao suggests that the second-quarter rate
may rise to 8.4%.
In contrast, the PMI
compiled by HSBC, which covers 400 mostly small-
and medium-sized enterprises (SMEs) rather than
the CFLP's 800 or so state-owned and large
enterprises, fell for the fifth consecutive month,
to 48.2.
Alaistair Chan of Moody's
Analytics told Xinhua news agency that the
difference reflected a greater focus by HSBC on
"smaller, export-oriented manufacturers, many of
whom are feeling the effects of weak global demand
and tough credit markets".
Larger
enterprises have had easier access to bank
finance, and therefore have been able to pursue
expansion better than SMEs. There is a possibility
that greater private landing may help to solve the
problem. An economic experiment in this direction
is currently underway. It is hoped that, if
successful, the wider expansion of the practice
will reduce the role of underground private
financing and associated corruption.
The
delicacy of the situation is reflected in the
equity markets. The Shanghai Stock Exchange
Composite (SSEC) index is now up against a
longer-time, nearly five-year descending-tops
trend line that today passes through the 2,322
level - at midday the SSEC was struggling at
2,301. The situation is rendered still more
ambiguous by the fact that this downtrend
resistance may equally be counted as either the
second or the third post-financial crisis fan.
A three-fan chart formation would imply
that the investor should purchase in anticipation
of definite further advances, after successful
penetration through a third fan to the upside is
confirmed. Short- and long-term technical
indicators for the SSEC come down on both sides of
the issue without any definite prognostication one
way or the other.
Nevertheless, the
definite bounce off the 2,250 level at the
beginning of the month confirms the index's exit
to the upside from out of its relatively sharp,
year-long declining channel than began last year's
April 18 local maximum at 3,057.
Even so,
the MSCI Asia Pacific Index has pointedly failed
in its most recent attempt to break through its
own post-crisis third fan, which today passes
through the low 130s, at either 130.24 or 133.13,
depending on how one wishes to calculate. The MSCI
index is mired in the mid-120s and falling lower
so far this week.
Dr Robert M
Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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