Xi Advances Globalization Plan
Growth was stable April. Real estate investment accelerated, but fixed asset investment growth remained weak, and auto production and sales fell. Money supply grew more slowly, adding constraints on future economic growth. The active real estate market is one key positive factor for economic growth. However, the real estate factor faces large uncertainty, as it is affected by future macro-policy adjustment.
Value added for major industrial firms increased 6.5% y/y in April, down 1.1 pps from March. The adjusted growth rate, conversely, is at its highest since April 2016. We can basically conclude that the current growth rate is within a stable growth zone. Fixed asset investment rose 8.3% y/y, down 0.9 pps and its real growth rate reached a new low, down 3 pps from Q4 2016. Investment slowdown is mainly attributed to private investment growth slowdown. The trade situation improved in April. Exports increased 8% y/y, and imports 11.9% y/y, down 12.1 pps from Q1. Imports growth has fallen to a sustainable level, and should fluctuate around this rate for some time.
CPI was up 1.2% y/y in April, and up 0.3 pps from March. We expect CPI to fall below 1% y/y this year; it might rebound strongly from June to August, but a rise above 2% y/y is also unlikely. The ex-factory price of industrial goods rose 6.4% y/y, down 1.2 pps from March. PPI rose 9% y/y, down 1 pps from March. We expect these trends to persist.
Monetary policy is still falling toward normal levels. M1 rose 18.5% y/y, down 0.3 pps from March, and M2 rose 10.5% y/y, down 0.1 pps . Total RMB loans rose 12.9% y/y, a sudden speedup, up 0.5 pps from March. Loan growth recovery is a consequence of strengthening financial regulation from off to on balance sheet.
President Jinping Xi on May 15th held a “Belt and Road Forum” in Beijing, advocating globalization, and announcing the addition of $12.4 billion into the China-bankrolled project, which involves a series of ports, railways, roads and industrial parks. This project, linking more than 60 countries in Eurasia, will assist these countries with their infrastructure needs. This exporting of excessive capital is partially a consequence of China’s excessive domestic saving with rate of around 50%, a level now-developed countries historically experienced as well. This project will benefit China and the rest of the world, by providing a more integrated global market.
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