China Macro: Retail sales disappoint in November.

This morning, China’s activity data for November were published. As expected, industrial production growth picked up to 3.8% yoy (October: 3.5%, consensus: 3.7%), confirming that the effects of a previous energy crunch and other supply side disturbances continue to fade. Moreover, the production side is supported by strong exports, which continue to benefit from strong global demand for goods (with a rotation towards services being delayed by virus flare-ups and new variants).

The picture on the domestic demand side was less impressive. Fixed investment slowed to 5.2% yoy ytd (October: 6.1%, consensus 5.4%). Retail sales clearly disappointed with 3.9% yoy (October: 4.9%, consensus: 4.7%), with zero-tolerance covid-19 policy keeping a lid on the further recovery of private consumption (following a rebound in September/ October). All in all, we think the latest data are in line with our view that quarterly GDP growth will show a pick-up in Q4 (compared to a very weak Q3), although annual growth will slow further in Q4.   

CEWC preaches stability, stability, stability.

The annual Central Economic Work Conference (CEWC) held in Beijing end of last week confirmed that policy makers will put safeguarding growth on the top of their priority list for 2022. This year, a focus on financial derisking combined with strict covid-19 and environmental policies caused a self-inflicted slowdown in Q1-Q3 2021. ‘Stability’ was the key word in the CEWC press communique.

This suggests that a further piecemeal easing of monetary policy (as of today, the PBoC’s latest 50bp cut in bank RRRs is effective) and fiscal policy is on the cards. Unlike last year, the statement that ‘credit growth should not exceed nominal GDP growth’ was left out. This suggests that some pick-up in credit growth will be tolerated. China’s credit impulse already is bottoming out. This further shift towards stabilizing growth is in line with what we expected, as policy inaction would mean that full-year growth in 2022 would fall below Beijing’s preferred trajectory (see for further background our China Outlook for 2022).

Meanwhile on the regulatory front, China will likely continue with tightening regulation for internet firms (particularly in the area of data security) and promoting common prosperity. However, for the sake of stability a somewhat lighter approach, with more careful communication, is likely. We also expect Beijing to take further measures to contain the drags from real estate.