Total Social Financing rebounded in August (RMB mn)
Source: People’s Bank of China. September 2023.
Summary
There are tentative signs of stabilisation in the Chinese economy.
China’s credit numbers beat expectations in August, the latest in a series of recent readings showing tentative signs of stabilisation in the Chinese economy. August’s new RMB loans reached RMB1,340 bn and New Total Social Financing (TSF), a broad measure of liquidity and credit in the economy, hit RMB3.12 tr. While July’s exceptionally weak numbers were an easy beat, it is encouraging to note that both the headline new loans and new TSF were higher compared to a year ago. Government bond issuance rebounded almost 4-fold relative to August last year as fiscal implementation accelerated, although property-related and corporate loan demand remained soft.
Since the end of July, the Chinese authorities have announced more stimulus measures, including lowering the amount of down payment needed for home purchases as well as reducing the interest rate on outstanding first home loans. According to Jingjing Weng, Research Lead at Eastspring Shanghai, a “policy bottom” may have been established, and historically, this is followed by an “economic bottom” as consumer confidence rebounds. Jingjing observes that China’s Industrial Finished Goods Inventory grew 1.6% in July, down from 2.2% in June. More and more industries are shifting away from active destocking, which reflects weak demand and expectations, to passive destocking, where demand and production are both improving, but demand outpaces production. Exports and imports also contracted at a slower pace in August while China’s Manufacturing Purchasing Managers’ Index picked up unexpectedly to 49.7 from 49.3. Meanwhile, China’s consumer prices returned to positive territory in August, as we suggested it would in an earlier article.
Investor sentiment towards Chinese equities is currently very bearish. With monthly Northbound outflows close to a historical peak of RMB90 bn in August, further outflows may be limited. It will be key to watch how policies take effect in the following one to two months to determine whether the recent economic momentum can be sustained. While China’s economic recovery is likely to be bumpy as the Chinese government seeks to achieve more balanced and higher quality growth over the long term, there are still many highly competitive and innovative Chinese companies within the advanced manufacturing and e-commerce sectors, as well as within the electrical vehicle and green energy supply chains. At current valuations of 9.8x price to earnings ratio1, the long-term prospects for the China A-share market appear attractive.
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1 Wind. As of 12 Sep 2023.
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