Macro

China Economics

abc
Global Research

China Inside Out

Chinas outbound investment is set to

double in the next 3-5 years

China going global: key trends

This reflects the countrys huge

appetite for resources, excess capacity
and plentiful supply of trade dollars
It should also help slow the growth in
FX reserves
Already well-known for its rapid accumulation of FX
reserves, Chinas outbound direct investment (ODI) is also
taking off. With ODI (non-financial) of nearly USD60bn last
year, China in now the worlds fifth largest exporter of
capital, and signs have emerged that this figure is likely to
double in the next 3-5 years.

29 April 2011
Qu Hongbin
Chief Economist, Greater China
The Hongkong and Shanghai Banking Corporation Limited
+852 2822 2025
hongbinqu@hsbc.com.hk
Sun Junwei
Economist

China accounted for two thirds of the increase in global

demand for hard commodities over 2003-07 and this surged
to over 100% during 2008-10. Policy tightening would lead
to a cyclical slowdown in fixed-asset investment this year
and next, but the countrys structural growth story (ongoing
urbanisation) remains intact. So securing its supply of
resources will continue to drive Chinas ODI for the
foreseeable future. While Chinas acquisition of resources
still faces roadblocks, Beijings increasing investment in
infrastructure in resource-rich emerging economies should
help facilitate this process.
China overtook the US last year as the worlds largest
manufacturer. What China needs to do next is to acquire
better technology and establish a global distribution network
for its products, especially in emerging markets, in our view.
This means much more cross-border M&A in the coming
years. Chinas banks will accelerate international expansion
to facilitate their clients expansion around the globe,
implying surging financial investment in the coming years.

View HSBC Global Research at: http://www.research.hsbc.com

Issuer of report:

The Hongkong and Shanghai Banking

Corporation Limited

Disclaimer & Disclosures

This report must be read with the
disclosures and the analyst certifications
in the Disclosure appendix, and with the
Disclaimer, which forms part of it

Money is not an issue given still strong net dollar inflows. In

fact, Beijing sees the corporate sectors outbound investment
as a key substitute for FX reserve accumulation. We expect
Chinas ODI to exceed its FDI inflows and double in the
next 3-5 years. Combined with further easing of restrictions
on Chinese households outbound investment, this should
help slow growth in FX reserves.

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29 April 2011

Contents
Outbound investment takes off

Going global

It is all about emerging markets

ODI and renminbi

ODI to double in 3-5 years

Charts

Prices

20

Commodity prices

22

Money and credit growth

24

Interest and exchange rates

26

Employment and income

28

GDP

10

Asset markets

30

Industrial production

12

Data and forecasts

33

Private consumption

14

Fixed investment

16

Trade

18

China

34

Global

35

Disclosure appendix

38

Disclaimer

39

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29 April 2011

Outbound investment
takes off
Rising industrial capacity, huge appetite for resources and a

plentiful supply of dollars all fuel outbound investment

and recent turmoil in MENA wont derail the surging trend
We expect Chinas outbound investment to double in 3-5 years

The annual ODI for non-financial companies

surged more than 20 fold from 2002 to 2010 and
five times in the past five years.

Going global
China now is not just the worlds exporter of
goods but also one of the worlds top exporters of
capital. Massive FX reserves aside, the countrys
outbound direct investment (ODI) is also taking
off, reaching nearly USD60bn last year. Signs
have emerged that this figure may double in the
coming 3-5 years.

Despite the financial crisis, Chinas ODI rose

11% y-o-y in 2009 (while world direct investment
contracted 37%), making it the worlds fifth
largest ODI source country and the largest among
emerging markets. In 2010, annual ODI flow
surged 36.3% y-o-y to USD59bn (non-financial)
from just USD2.7bn in 2002 (annual average of
USD2.4bn in 1990s), implying an annual growth
rate of 47%.

The expansion of Chinas ODI has indeed been

extraordinary, in particular since 2002 when
Chinas government initiated its strategic plan to
encourage Chinese enterprises to go global.
Chart 1 Chinas outward direct investment takes off

120

(%)

(USDbn)

14
12

100

10

80

60

40

20

0
1979

1981

1983

1985

1987

1989

1991

China's annual ODI flow s (Lhs)

1993

1995

1997

1999

2001

2003

2005

2007

2009

China's ODI flow s as % of w orld total (Rhs)

Source: UNCTAD, HSBC

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By 2009, there were over 12,000 Chinese

companies and institutions making overseas direct
investments in more than 13,000 foreign
companies across 177 countries and regions.
The accumulative ODI was USD305bn by 2010
(excluding 2010 financial ODI).
That said, Chinas non-financial ODI accounted
for only 5.1% of global FDI, which does not
properly reflect its status as the worlds second
largest economy (10% of world GDP). Put
another way, Chinas ODI needs to double to
match its economic power. The huge growth
potential of Chinas ODI is discussed in detail in
the following section.
To better understand the dynamics of Chinas
ODI, lets first look at some its key features:

Who is making overseas investments?

State-owned enterprises (SOEs) account for the
lions share of total ODI. In 2009, 67.6% of ODI
was made by central SOEs, while private
enterprises accounted for 0.6%. In accumulative
terms (by 2009), SOEs accounted for 69.2% of
total ODI, limited liability companies 22%,
shareholding companies 5.6%, private company
1% and foreign companies 0.5%. More
specifically, the list of top 50 enterprises in terms
of outward investment volume suggests that 90%
are SOEs or their shareholding companies.

textiles, special purpose equipment, information

and technology and electronics.
Chart 2. Annual sectoral distribution of non-financial ODI

60

(% of total)

40
20
0
2003 2004 2005 2006 2007 2008 2009 2010
Leasing & Commercial Serv ice
Mining
Manufacturing
Wholesale & Retail Trade
Source: CEIC, HSBC

Overall, Chinas non-financial ODI is

increasingly concentrated in five sectors (in
accumulative terms): leasing and commercial
services, mining, wholesale and retail,
manufacturing and transportation (see chart 3).
They had a combined share of over 90% in 2010,
nearly 5ppts more than five years ago. This is
mainly because of a notable gain in leasing and
commercial services (up to 39% from 29% 2005)
and mining (up to 20% from 15% 2005).
Chart 3. Top five sectors for Chinas accumulative ODI

50

(% of total)
2005

40

2010

30
20

Non-financial ODI overwhelmed ODI in financial

sectors. Within non-financial ODI, leasing and
commercial services account for nearly a half of
the annual non-financial ODI flows (47.3% in
2010, a large share going to Hong Kong as
discussed later), followed by mining (20.2% in
2010), manufacturing (10.2% in 2010), and the
wholesale and retail trade (9.3% in 2010).

For financial sectors, banking accounts for nearly

Notably, manufacturing ODIs share of total ODI

picked up to a five-year high 10.2% in 2010
from 4.2-4.7% in 2008-09. Manufacturing focuses
on transport equipment, machinery equipment,

80% of accumulative ODI, followed by securities

(3.1%) and insurance (1%). The overseas
expansion of state-owned banks started from 2006
when major state-owned banks were listed after

10
0
Leasing &
Commercial

Mining

Wholesale,

Manuf

Transport

retail

Serv ice
Source: CEIC, HSBC

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the reforms and demand for overseas financial

support surged along with SOEs overseas
expansion. By 2009 state-owned banks had over
50 branches in 28 countries/regions.
This reflects the following key motivations for
Chinese companies global expansion:
Securing a supply of resources: For instance,
China is the worlds second largest oil
consumer (accounting for 10% of global
consumption) and over 50% of Chinas oil
consumption relies on imports. To meet the
rising gap between domestic production and
demand, state-owned oil companies have
been (and would continue to be) active in
acquiring stakes in oil fields around the world.
Acquiring technology and brand names: an
emerging trend for Chinese manufacturers is
to strengthen their competitiveness across the
globe. Examples include Lenovo (PC maker)
acquiring IBM and Geely (car maker) buying
Volvo.
Establishing marketing channels in new
markets: In a bid to escape intense
competition in the domestic market, Chinese
companies are creating direct distribution
networks to facilitate exports or setting up
factories locally to avoid trade barriers.

Where does Chinas ODI go to?

By region, emerging markets remain the top
destination of Chinese funds, while Chinas ODI
to developed markets accounted for only 7.4% of
total accumulative ODI. More specifically, Asia
attracts 75% of the accumulative ODI (2002-09),
followed by 12.5% in Latin America, 3.8% in
Africa, 3.5% in Europe, 2.6% in Oceania and
2.1% in North America.
The 2009 data (the latest country breakdown)
suggest ODI saw multi-fold expansion in Europe
(up 280% y-o-y, accounting 5.9% of 2009 ODI

flows), North America (up 320% y-o-y, 2.7% of

2009 ODI flows) and Latin America (up 100%
y-o-y, 13% of 2009 ODI flows).
Chart 4. Regional allocation of Chins ODI (2009 stock)

100

(%)

(%)

80

60

40

20

0
2003 2004 2005 2006
Asia (Lhs)
Africa (Lhs)
North Am (Rhs)

2007

2008 2009
LatinAm (Rhs)
Europe (Rhs)
Oceania(Rhs)

Source: CEIC, HSBC

Hong Kong, with an overwhelming share in

Chinese ODI (63% in 2009 flow and 66.9% in
2009 stock), should be treated as an exception.
The top three industries are leasing and
commercial services (39% 2009), financial
services (21.1% 2009) and wholesale and retail
sales (13.7% 2009). Unlike ODI to other tax
haven economies, Chinas direct investment into
Hong Kong is mainly due to its unique position as
a gateway to the Asia-Pacific region and the
world. Aside from being a logistics hub, Hong
Kongs developed financial markets and advanced
services industries help Chinese enterprises
establish international presence, build better
regional distribution and marketing channels,
and enjoy easier access to the regions
financial resources.
Within Latin America, the offshore tax the Virgin
Islands and Cayman Islands are the top two
destinations, accounting for a combined 11.6% in
accumulative total ODI by 2009, or over 93% in
accumulative ODI to Latin America. Brazil is
most attractive to Chinese investors, though it has
a small share in total ODI: 0.2% in 2009 and
0.15% in accumulative terms. Peru and Venezuela
are the only two with a share above 0.1%.

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Within Africa, it is more evenly distributed

among a handful of countries. In accumulative
terms (by 2009), South Africa is the top
destination, accounting for 0.94% of total ODI,
followed by Nigeria (0.4%), Zambia (0.34%),
Algeria (0.3%) and Sudan (0.23%) and Congo
(DR) (0.16%).

It is all about emerging

markets
The recent turmoil in MENA, in particular in
Libya, where over 50 projects are still under
construction by Chinese companies, raises
concerns about the outlook of Chinese ODI.
Admittedly, these temporary disruptions have
already caused a notable decline in contract value
growth in these regions. For instance, there was a
46.9% y-o-y fall in Chinas contracted projects in
Libya in 1Q 2011.
That said, this doesnt mean Chinas overall ODI
trend will suffer any setbacks. Chinas ODI
should keep rising rapidly and emerging markets
will likely be the key focus for Chinese investors
global expansion, not least because of their highly
complementary economic structure China is the
worlds largest producer of manufactured goods,
while emerging countries have rich resources and
commodities that China needs to meet domestic
demand. The previous surge in ODI that took
place in tandem with the strategy of Chinese
enterprises going abroad was only a beginning.
We believe Chinese companies will keep
expanding overseas for many years to come.
First, Chinas manufacturers will have to
explore new markets given that the highlyindebted developed countries are still suffering
from high unemployment and slow recoveries.
HSBCs economics team forecasts 2.1% y-o-y
and 2.5% y-o-y growth for developed markets in
2010 and 2011, respectively, while emerging

markets should have higher growth at 6.3% y-o-y

in the coming two years.
As such, the faster recovery in emerging markets
points to new sources of export growth for
Chinas manufacturers. Chinas exports to
emerging markets have been outperforming
exports to developed markets since 2005,
resulting in a 6ppt increase in emerging markets
share in total Chinese exports (54.6% in 2010).
Chart 5. Chinas exports to emerging markets outperformed

40
30
20
10
0
-10 1996

1999

2002

2005

2008

20111Q

-20
Dev eloped markets(%yr)

Emerging markets

Source: CEIC, HSBC

While the overseas expansion of Chinas

manufacturers can be traced back to the late 1990s,
investment soared to USD6bn in 2010 from just
USD624m in 2003. Besides setting up
manufacturing plants in foreign countries, more
and more investment cases are made through
mergers and acquisitions. For instance, Chinese
automaker Geely acquired a 100% stake in Volvo
for USD1.8bn last year.
Tapping the potential of local markets and lifting
market share is the top consideration for Chinese
manufacturers as they expand overseas. With their
geographical advantages, localised manufacturing
bases should have better local knowledge of and
access to local markets. In many cases they can
avoid any trade barriers and make use of cheap
labour and resources.
Examples of major Chinese enterprises that have
expanded internationally include white goods
producer Haiers manufacturing bases in both

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29 April 2011

South East Asia and North America, and domestic

car marker Cherys plan to build a manufacturing
plant in Brazil, which is the largest car market in
Latin America.
Secondly, China has to secure resources beyond
its domestic market; this is a long-term trend.
China accounted for two thirds of the increase in
global demand for hard commodities over 200307, and this share surged to over 100% during
2008-10. Policy tightening would lead to a
cyclical slowdown in fixed-asset investment this
year and next, but the countrys structural growth
story (ongoing urbanisation) remains intact. So
securing the necessary supply of resources will
continue to drive Chinese ODI in the foreseeable
future. There will be some roadblocks but
Beijings increasing investment in infrastructure
in resource-rich emerging economies should help
to facilitate these resources deals.

The implication of Chinas surging ODI (either

for the sake of increasing market share or securing
resources) in emerging markets is part of a new
recycling of trade between China and these
countries. On top of the direct revenue these
nations obtain from providing resources to
Chinese companies, Chinese investment all boosts
the local economies. The spill-over from these
infrastructure and industrial projects help increase
local productivity growth and improve
infrastructure networks.
As such, this consolidates complimentary
comparative advantages. Surging Chinese direct
investment strengthens emerging market
purchasing power and also increases the
acceptance of Chinese manufacturing goods.
Meanwhile, Chinas rapid domestic demand
growth allows huge imports of raw materials from
these countries, fortifying a benign trade cycle.

Led by state-owned enterprises (such as Sinopec,

Petro China and Chinalco), Chinese companies
have speeded up the pace of acquiring/ buying
overseas mines. Over the past seven years,
Chinese companies have made over 91 overseas
mining acquisitions worth USD32bn, according to
the Chinese Academy of Social Sciences (CASS),
a Beijing-based think tank.
As well as making direct acquisitions in Australia
and other resource-rich countries, China has been
very aggressive in building infrastructure in
Africa as well as co-operating with or sponsoring
local companies to jointly develop mining
projects. Chinese companies have also helped to
speed up construction projects where they already
have expertise. These include building a gas
turbine power plant in Nigeria and the
construction of the Souapiti Dam in Guinea
(source: World Bank report).

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ODI and renminbi

Chinas ambition to internationalise the renminbi
(see The rise of the redback, published 8
November 2010) has resulted in faster-thanexpected progress in renminbi international trade
settlement (see chart 6) and an acceleration in the
pace of using renminbi for cross-border trade
investment. These have multiple implications for
Chinese ODI:
First, as a key step towards the renminbis full
use in international investment, the PBoC has
allowed domestic companies to use renminbi in
overseas direct investment (see China: PBoC
starts trial for RMB direct investment overseas,
14 January 2011).
The Chinese companies registered for the pilot
cross-border trade settlement programme (20
provinces, likely to be expanded to the whole
nation this year) are eligible to make ODI and
remit revenue in renminbi. This arrangement will
only make ODI more convenient and reduce the
exchange rate risk. The renminbis expected
gradual appreciation in coming years should
further fuel enthusiasm for overseas expansion by
Chinese enterprises.

(RMB bn)

Chinas ODI will be continuously driven by the

need to secure resources and explore new markets.
China overtook the US last year as the worlds
largest manufacturer. What China needs to do
next is to acquire better technology and establish a
global distribution network for its products,
especially in emerging markets, in our view.
All this means much more cross-border M&A in
the coming years.
More importantly, as more Chinese enterprises
extend their global reach (USD60bn and still
growing at 30% pa). They are in desperate need of
cross-border M&A advisory, financing and other
high value-added financial services. Domestic
financial institutions, in particular the large state
banks, will step up their global expansion to
facilitate the needs of their clients (in particular

Money is not an issue given still strong net dollar

inflows. In fact, Beijing sees the corporate
sectors outbound investment as a key substitute

300
200

for FX reserve accumulation. We expect Chinas

ODI to exceed its FDI inflows and double in the

100
0
Sep-09

Mar-10

Sep-10

Value of renminbi trade settlement

Source: CEIC, PBoC, HSBC

ODI to double in 3-5 years

the SOEs), implying surging financial

investment abroad.

Chart. 6: RMB trade settlement taking off

400

Secondly, the fact that most of the increase in

renminbi trade settlement is taking place in
emerging countries paves the way for wider
acceptance of the renminbi as an investment
currency in these regions. This should encourage
the recycling of trade-related renminbi funds for
offshore investment.

Mar-11

next 3-5 years. Combined with further easing of

Chinese households outbound investment, this
should help slow the growth in FX reserves.

Macro
China Economics
29 April 2011

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Charts

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Macro
China Economics
29 April 2011

GDP
GDP growth for 1Q came in stronger than the market expected at

9.7% y-o-y, cooling a bit from 4Qs 9.8%

Yet annualised q-o-q (seasonally adjusted) GDP growth slowed

meaningfully to 8.4%, from 9.6% in 4Q 2010, implying that the

tightening measures have started to rein in overheated growth
This slowdown should help contain inflation, though the risk of a

hard landing is still remote; we expect around 9% GDP growth for

this year, thanks to resilient domestic demand

1. Long-term real GDP trend

2. OECD leading index versus China real GDP

18

12

15

12

-4

-8

-12
00 01

02

03

04

05

06

07

%YoY

08

09

10 11

%y oy

%y oy

14
13
12
11
10
9
8
7
6

00 01 02 03 04 05 06 07 08 09 10 11
OECD leading (LHS)
Real GDP (RHS)

SAAR

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Service and manufacturing PMI

4. Economic leading indicator versus business climate change

65

12

60

20

55

10

50

45

-10

40

-3

-20

-6

-30

PMI - serv ice

Source: CEIC, HSBC

10

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

35

PMI - mfg

% y oy

% y oy

00 01 02 03 04 05 06 07 08 09 10 11
Economic leading indicator (LHS)
Business climate index (RHS)
Source: CEIC, HSBC

30

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29 April 2011

5. GDP, by region (nominal GDP, weighted)

6. GDP, by industry

YTD, %y oy

17

YTD, %y oy

21

15

18

13

15

11

12
9

Bohai

YRD

Sep-10

Mar-10

Sep-09

Mar-09

Sep-08

Mar-08

Sep-07

Mar-07

Sep-06

Mar-06

Sep-05

Mar-05

93

PRD

95

97

99

Primary

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Industrial production

8. Commodity production

% y oy , 3mma

21

01

05

Secondary

07

09

11

Tertiary

% y oy , 3mma

40

18

03

30

15
20
12
10

9
6

-10
01

02

03

04

05

06

07

08

09

10

11

01

VAI

02 03 04 05
Coal production

Source: CEIC, HSBC

Source: CEIC, HSBC

9. Construction sector

10. Confidence indices

RMB bn

%y oy

30

110

2,500

28

105

2,000

26

1,500

24

1,000

22

95

500

20

90

18
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11

3,000

Construction output v alue

Source: CEIC, HSBC

%y oy

06

07 08 09 10 11
Electricity production

65

60

100

55

50

85
01 02 03 04 05 06 07 08 09 10 11
Consumer confidence (LHS)
Future income confidence (RHS)
Source: CEIC, HSBC

11

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Industrial production
IP growth accelerated to a higher-than-expected 14.8% y-o-y in

March, from 14.1% y-o-y for Jan-Feb, edging up to 1.2% m-o-m

sa in March from around 1% previously
By industry, growth of heavy industries quickened to 15.6% y-o-y

in March from 14.4% in Jan-Feb, while growth of light industries

decelerated to 12.8% y-o-y in March from 13.3% y-o-y previously
HSBC China manufacturing PMI has been stable at 51.8 for the

past two months, implying steady growth momentum of

manufacture activities in the coming months

1. Industrial production vs GDP

2. Industrial production growth trend

%y oy

21
19
17
15
13
11
9
7
5

%y oy

15

20

%y oy , 3mma

%mom, 3mma

13
11

15

2
9

10

7
5
01 02 03

04 05 06 07 08 09
IP (LHS)

-2
-4

5
00 01 02 03 04 05 06 07 08 09 10 11

10 11

%YoY

GDP (RHS)

SA, %MoM

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Industrial production vs manufacturing PMI

4. Electricity production changes together with IP

%y oy , 3mma

21
19
17
15
13
11
9
7
5

65

25

% y oy , 3mma

% y oy , 3mma 40

60
55
50

30
20

20

15

10

45
40

0
10

-10

Source: CEIC, HSBC

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jan-07

Jul-06

Jul-05

Jan-06

Jan-05

35

IP (LHS)

12

Mfg PMI (RHS)

-20
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
IP

Source: CEIC, HSBC

Electricity production

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29 April 2011

5. Production, light and heavy industry

6. Production, by enterprise ownership

% y oy , 3mma

24

% y oy , 3mma

25
20

19

15
10

14

0
01

4
01

02

03 04 05
Light industry

06

07

08 09 10 11
Heav y industry

02

03

04

05

SOE
Share holding enterprise

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Manufacturing PMI breakdown

8. Industrial profit margin

90

10

Output
Output Prices

Jan-11

Jul-10

Jul-09

Jan-10

Jul-08

Jan-09

2
Jul-07

10
Jan-08

Jul-06

30

Jan-07

Jan-06

50

Jul-05

Jan-05

70

PMI Index
Input Prices

08

09

10

11

Collectiv e ow nership
Foreign funded

0
99 00 01 02 03 04 05 06 07 08 09 10
Industrial enterprise: pre-tax profit margin

New Orders

Source: CEIC, HSBC

9. Mining, petroleum and natural gas extraction

10. Manufacturing production

% y oy

07

Source: CEIC, HSBC

40

% y oy

30
20
10

Coal mining & dressing

Petroleum & natural gas ex traction
Source: CEIC, HSBC

0
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11

Feb-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-10
Feb-11

30
25
20
15
10
5
0
-5
-10

06

Food
Electric M&E

Tex tile
Transport'n equip

Source: CEIC, HSBC

13

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Private consumption
Retail sales growth rebounded to 17.4% y-o-y in March, notably

higher than the downside surprise of 15.8% y-o-y in Jan-Feb;

seasonally adjusted m-o-m growth remained flat at 1.3%
Netting off CPI inflation, real retail sales growth quickened to 12%

in March from 10.9% y-o-y in January-February, thanks to

buoyant demand despite intensifying inflation
We remain positive on household consumption thanks to continued

labour market improvement, rapid income growth, and an anticipated

boost in consumer sentiment from inflation easing in 2H

1. Retail sales trend

2. Consumer confidence

25

50

110

40
20

30

15

100

20
10

10

90

0
5

-10

80
00 01 02 03 04 05 06 07 08 09 10 11
Consumer confidence
Satisfactory index
Ex pectation index

00 01 02 03 04 05 06 07 08 09 10 11
%YoY (LHS)
SAAR, 3mma (RHS)
Source: CEIC, HSBC

Source: CEIC, HSBC

3. Confidence in income

4. Confidence in prices

70

90

65

70

60
50

55
50

30

45

10
01

02

03

04

05

06

07

08

09

10

11

01

02

03

14

05

06

07

08

09

Current price satisfaction

Future price ex pectation

Current income sentiment

Future income confidence
Source: CEIC, HSBC

04

Source: CEIC, HSBC

10

11

abc

Macro
China Economics
29 April 2011

5. Retail sales, by sector

27

6. Retail sales in urban vs rural areas

% y oy

27

24

24

21

21

18

18

15

% y oy

15

12

12
9
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11

Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11

Wholesale & Retail Trade

Accommodation & Catering Trade

Urban

Rural

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Per-capita income vs expenditure Urban households

8. Per-capita income vs expenditure Rural households

per capita, % y oy

30
25

20

per capita, % y oy

20
15

15
10

10
5

5
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10

0
-5
Mar-02
Sep-02
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10

25

Income
Disposable income
Consumption ex penditure

Cash Income

Cash ex penditure

Source: CEIC, HSBC

Source: CEIC, HSBC

9. Expenditure, by product Urban households

10. Expenditure, by product Rural households

%y oy

40

%y oy

30
20
10
0

Food & housing

Transport & telecom
Source: CEIC, HSBC

Clothing
Serv ice & others

Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10

-10
Mar-03
Sep-03
Mar-04
Sep-04
Mar-05
Sep-05
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10

30
25
20
15
10
5
0
-5

Food & housing

Transport & telecom

Clothing
Serv ice & others

Source: CEIC, HSBC

15

abc

Macro
China Economics
29 April 2011

Fixed investment
Fixed asset investment (FAI) growth edged up to 25% y-o-y in 1Q

from 24.9% y-o-y in January-February; in March, FAI growth

quickened to 1.7% m-o-m sa from 1.5% m-o-m previously
This is attributed to faster investment growth in the primary and

secondary sectors (up 10.8% y-o-y and 24.8% y-o-y y-t-d in March
respectively, compared with 6.9% and 24.7% in Jan-Feb)
Growth of investment in newly-started projects returned to positive

territory in March from minus 23.6% y-o-y in Jan-Feb, pointing to

better growth momentum of future investment

1. FAI growth

2. FAI, by enterprise ownership

55

120
100
80
60
40
20
0
-20

50
45
40
35
30
25
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

20

y td, %y oy

SOE
Priv ate enterprise

y td, %y oy

Shareholding
Foreign fund

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Construction vs equipment purchase

4. Number of projects started and under construction

80

y td, %y oy

80

70

60

60

40

50
30

20

-20

Construction and installation

Equipment purchase
Source: CEIC, HSBC

Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

20

Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

40

16

y td, %y oy

Under construction
Source: CEIC, HSBC

New ly Started

abc

Macro
China Economics
29 April 2011

5. FAI, by work type

6. FAI in mining sector

y td, %y oy

70
60
50
40
30
20
10
0

y td, %y oy

150
100
50

New Construction
Transformation

Coal
Non metal

Ex pansion

Source: CEIC, HSBC

7. FAI in manufacturing sectors

8. FAI in construction, real estate and transport

y td, %y oy

50
0
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

-50

Non metal mineral

Electric M&E

Real estate

Construction

Source: CEIC, HSBC

Source: CEIC, HSBC

9. FAI, by infrastructure project

10. FAI, by source of financing

100%

100%

80%

80%

60%

60%

40%

Jul-10

20
0
-20
-40
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

100

Chemical
Tex tile

y td, % y oy

100
80
60
40

150

Jan-11

Ferrous metal
Electricity & heating

Source: CEIC, HSBC

Transport

40%

20%

20%

Source: CEIC, HSBC

Jan-11

Jul-10

Jul-09

Jul-08

Jul-07

State budget
Foreign capital

Jan-10

Highw ay
Waterw ay

Jan-08

Railw ay
Urban public transit
Air

0%
Jan-07

Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11

0%

Jan-09

200

Jan-10

Jul-09

Jul-08

Jan-09

Jul-07

Jan-08

Jan-07

Jul-06

Jul-05

Jan-06

Jan-05

Jan-11

Jul-10

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jul-06

Jan-07

Jan-06

Jul-05

Jan-05

Domestic loan
Self raised

Source: CEIC, HSBC

17

abc

Macro
China Economics
29 April 2011

Trade
Exports and imports exceeded market expectations by a wide

margin in March, resulting in a small trade surplus of USD140m

compared with the likely one-off deficit of USD7.3bn in February
Exports surged 35.8% y-o-y in March, higher than 21.7% y-o-y in

Jan-Feb; m-o-m growth sa jumped to 27.4%, well above the

average of -9.1% m-o-m in the previous three months
Imports grew faster than expected at 27.3% y-o-y in March,

thanks to solid domestic demand and high commodities prices

1. Overall external trade trend

80

%y oy , 3mma

2. Sequential growth in exports and imports

USD bn

40

60

30

40

20

20

10

-20

-10

-40

-20

%mom, 3mma

25
20
15
10
5
0
-5
-10
-15

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Trade balance (RHS)
Ex port (LHS)
Import (LHS)

00

01 02 03 04 05 06
Ex port (SA)

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Exports to G3 and ROW

4. Imports from G3 and ROW

50
40
30
20
10
0
-10
-20
-30

%y oy , 3mma

100
80
60
40
20
0
-20
-40
-60

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Ex port to G3
Source: CEIC, HSBC

18

Ex port to ROW

07 08 09 10 11
Imports (SA)

% y oy , 3mma

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Import from G3
Source: CEIC, HSBC

Import from ROW

abc

Macro
China Economics
29 April 2011

5. Taiwans new export orders as a leading indicator

80

6. PMI new export orders vs exports

% y oy , 3mma

10

%mom, 3mma

Pts

60
55
50
45
40
35
30
25
20

60
5

40
20

0
-5

-20
-40

-10
04

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Ex port
Taiw an's new ex port orders

05
06
07
Ex port (SA, LHS)

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Exports ordinary vs processing trade

8. Trade price index

% y oy

100

08
09
10
11
PMI new ex port orders (RHS)

% y oy

90

80
60

40

40
20

-10

0
-20

Source: CEIC, HSBC

9. Exports, by major commodity

10. Imports, by major commodity

% y oy

Jan-11

Jul-10

Jan-10

Jul-09

Ex port trade index v alue

Import trade index v alue

Ex port - Processing

Source: CEIC, HSBC

120
90
60
30
0
-30
-60

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jan-06

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

Ex port - Ordinary trade

Jul-06

-60

-40

80

% y oy , 3mma

60
40

Source: CEIC, HSBC

Iron ore

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

-20
Jan-06

Mineral fuel, lubricants & material

Manufactured goods
Machiery & transport equipment
Misc. mfg articles

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

20

Crude petroleum oil

Source: CEIC, HSBC

19

abc

Macro
China Economics
29 April 2011

Prices
CPI surged to a 32-month high of 5.4% y-o-y in March from 4.9%

y-o-y in the previous two months; we estimate that the m-o-m sa

growth rate picked up a bit to 0.5% from 0.4% previously
This can be largely attributed to faster-than-expected food prices

(up 11.7% y-o-y from 11% y-o-y in Feb); non-food prices (notably
services and housing) growth also gained momentum
Inflationary pressures have not been meaningfully alleviated but

are likely to peak around mid-year, which calls for continued

tightening measures
1. Consumer price trend

2. CPI, by major segment

%y oy

10

%mom, 3mma

2.0

25

1.5

20

1.0

15

0.5

10

0.0

-2

-0.5

-4

-1.0

-5

8
6
4
2
0

%y oy

06

01 02 03 04 05 06 07 08 09 10 11
YOY (LHS)
MOM (RHS)

07

09

Ov erall

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Urban vs rural inflation

4. Producer price index

10

08

%y oy

%y oy

15

Core

10

11
Food

%mom, 3mma

10

0.5

6
5

-0.5

0
-2

-5

-4

-10
01

02

03

04
Urban

Source: CEIC, HSBC

20

1.5

05

06

07

08

09

10

Rural

11

-1.5
-2.5
03

04 05 06
YOY (LHS)

Source: CEIC, HSBC

07

08

09 10 11
MOM (RHS)

abc

Macro
China Economics
29 April 2011

5. PPI, by industry (1)

6. PPI, by industry (2)

%y oy

15

%y oy

15

10

10

0
0

-5

-5

-10
-15

-10
01

02

03 04 05
Light industry

06

07

08 09 10 11
Heav y industry

01

02 03 04 05
Producer goods

06

07

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Purchase and output prices

8. Fixed asset investment price index

% y oy

20
15
10
5
0
-5
-10
-15

08 09 10 11
Consumer goods

% y oy

20
15
10
5
0
-5
-10

01

02

03

04

05

06

07

08

09

10 11

04

PPI
Corporate goods price index
Purchasing price index - raw materials

05

Source: CEIC, HSBC

Source: CEIC, HSBC

9. Petroleum prices

10. Property prices

% y oy

180
150
120
90
60
30
0
-30
-60

06

07

Ov erall index
Construct'n & install'n

08

09

10

11

Equip, tool & instrum't

% y oy

30
25
20
15
10
5
0

05

06

Source: CEIC, HSBC

07
08
09
10
PPI - petroleum and natural gas
Import v alue index - petroleum

11

-5
01

02

03

04

05 06 07 08 09
Residential property price

10

11

Source: CEIC, HSBC

21

abc

Macro
China Economics
29 April 2011

Commodity prices
March PPI picked up to 7.3% y-o-y, a touch higher than consensus

and the February reading of 7.2% y-o-y. The PPI price of producer
goods remained flat at 8.2% y-o-y, while the PPI price of consumer
goods picked up further to 4.4% y-o-y from 4.1% y-o-y in February
Rising crude oil and international commodities prices are not

helpful for containing inflation, but Chinas subsidies and

regulation on energy prices should buffer the impact

1. Wholesale price: Whorl steel

2. Wholesale price: Electrolysed copper

6,000

80,000

RMB / Ton

RMB / Ton

70,000

5,500

60,000

5,000

50,000

4,500

40,000

4,000

30,000

3,500

20,000

3,000

10,000
04

05

06

07

08

09

10

01 02

11

03

04 05

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Wholesale price: Aluminium

4. Wholesale price: Lead

23,000

26,000

RMB / Ton

06 07 08

09

09

10

10

11

RMB / Ton

21,000
22,000
19,000
18,000

17,000
15,000

14,000
13,000
11,000

10,000
01 02

Source: CEIC, HSBC

22

03

04 05

06 07 08

09

10

11

06
Source: CEIC, HSBC

07

08

11

abc

Macro
China Economics
29 April 2011

5. Wholesale price: Zinc

6. Wholesale price: Nickel

36,000

450,000

RMB / Ton

32,000

400,000

28,000

350,000

RMB / Ton

300,000

24,000

250,000

20,000

200,000

16,000

150,000

12,000

100,000

8,000

50,000
01 02 03

04 05 06

07 08 09 10 11

01 02 03 04 05 06 07 08 09 10 11

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Wholesale price: Diesel oil

8. Wholesale price: Gasoline

8,000

9,000

RMB / Ton

7,000

8,000

6,000

7,000

5,000

6,000

4,000

5,000

3,000

4,000

2,000

RMB / Ton

3,000
01

02 03

04

05

06 07 08

09

10

11

01

02

03 04

Source: CEIC, HSBC

Source: CEIC, HSBC

9. Retail price: Rice

10. Retail price: Flour

5.25
5.00
4.75
4.50
4.25
4.00
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00

3.75

RMB / Kg

05

06

07

08

09

10

11

05

06

07

08

09

10

11

RMB / Kg

3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
01

02

Source: CEIC, HSBC

03

04

05

06

07

08

09

10

11

01

02

03

04

Source: CEIC, HSBC

23

abc

Macro
China Economics
29 April 2011

Money and credit growth

March new lending rose to RMB679.4bn, higher than market

expectation and RMB535.6bn previously; accordingly, outstanding

loan growth edged up to 17.9% y-o-y from 17.8% in February
M2 growth rebounded to 16.6% y-o-y in March from 15.7% y-o-y in

February, thanks to faster new lending growth. Seasonally

adjusted, M2 growth rebounded to 1.9% m-o-m in March
That said, the average pace of M2 growth for the first quarter

was still slower than 4Q last year, thanks to the effect of

quantitative tightening

40
35
30
25
20
15
10
5
0
-5

M2

Loan

02

03

04

Demand deposit

Source: CEIC, HSBC

Source: CEIC, HSBC

3. FAI vs loan growth

4. New renminbi loans

35

15
5
04

05

06
Loan

Source: CEIC, HSBC

24

07

08

09

10

08

09

10

11
Loan

New RMB loan

Feb-07

25

07

Time deposit

Aug-08

45

06

RMB bn

Feb-08

2100
1800
1500
1200
900
600
300
0
-300

Aug-07

%y oy

55

05

Medium & long term

Short term and bill financing
New loan

11

FAI
Source: CEIC, HSBC

Feb-11

M1

01

Aug-10

98 99 00 01 02 03 04 05 06 07 08 09 10 11

%y oy

Feb-10

%y oy

Aug-09

40
35
30
25
20
15
10
5
0

2. Deposits vs loan growth

Feb-09

1. Loans vs money supply

abc

Macro
China Economics
29 April 2011

5. PBoC open market operations

6. Consumer credit

2,000

70

RMB bn

%y oy

60

1,000

50
0

40
30

-1,000

20
-2,000

Consumer loan

Source: Wind, HSBC (Data up to 29 Apr 2011)

Source: CEIC, HSBC

7. Loan-to-deposit ratio

8. Money supply vs price level

95

% y oy

45
40
35
30

90
85
80

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Liquidity w ithdraw al

Jul-08

Jan-08

Liquidity injection
Net position

Jan-10
Apr-10
Jul-10
Oct-10
Jan-11

Jan-09
Apr-09
Jul-09
Oct-09

Jan-08
Apr-08
Jul-08
Oct-08

10

Loan

% y oy

8
6

25
20
15
10
5

75
70
65
60
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Loan-to-deposit ratio

4
2
0
-2
98 99 00 01 02 03 04 05 06 07 08 09 10 11
M1 (LHS)

Source: CEIC, HSBC

Source: CEIC, HSBC

9. M1-M2 gap vs CPI

10. Foreign reserves

% y oy

% y oy

10

3,500

10

3,000

-5

1,000

-10

500

-15

-2

15

01 02

03 04 05 06 07
M1-M2 gap (LHS)

Source: CEIC, HSBC

08 09 10 11
CPI (RHS)

10

CPI (Lag by 6 months, RHS)

55
45

2,500
2,000

35

1,500

25
15

5
00 01 02 03 04 05 06 07 08 09 10 11
USD bn (LHS)

%YoY (RHS)

Source: CEIC, HSBC

25

abc

Macro
China Economics
29 April 2011

Interest and exchange rates

The PBoC has raised interest rates four times since October (with

the latest one in early April), pushing the 1-year deposit rate to
3.25% and the 1-year lending rate to 6.31%
We expect one more interest rate hike (25bp) in the coming

months to anchor inflation expectations

The RMB has appreciated against the USD by nearly 5% since

the June de-peg, but appreciation is not likely to be a main tool to

fight inflation given Chinas huge impact on international
commodities demand

2. Required reserve ratio

21
19
17
15
13
11
9
7
06

01

02 03 04 05
1Y lending rate

06

07

08 09 10 11
1Y deposit rate

07
08
09
10
RRR
Large depository institution
Small and medium depository institution

Source: CEIC, HSBC

Source: CEIC, HSBC

3. PBoC bill issuance and reference yield

4. Interbank rate

800

4
3

600
2

400

Jul-10

PBoC total bill issuance (LHS)

3M PBoC bill issuance ref. y ld (RHS)
Source: CEIC, HSBC

26

Jan-11

Jan-10

Jul-08

Jan-09
Jul-09

Jul-07
Jan-08

Jan-07

0
Jul-06

0
Jul-05
Jan-06

Jan-05

200

% p.a.

8
7
6
5
4
3
2
1
0

Jan-07

% p.a.

Jan-06

RMB bn

1,000

11

3M SHIBOR
Source: CEIC, HSBC

Jan-11

00

Jan-10

4
3
2
1
0

Jan-09

% p.a.

8
7
6
5

Jan-08

1. Lending vs savings rates

3M CHIBOR

abc

Macro
China Economics
29 April 2011

5. Bond yields

6. Mortgage rate

% p.a.

% p.a.

5.5

5.0

4.5

2
4.0

3.5
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11

3.0
02

1Y treasury bond y ield

1Y Policy financial bond y ield

03

04 05 06
5 Yr or Less

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Distribution of actual lending rate

8. Foreign exchange rate

100

12

7
May-09

Jan-09

As Benchmark
10-30% abov e

10% below
30-100% abov e

Sep-10

8
May-10

20
Jan-10

40

Sep-09

10

Sep-08

60

May-08

11

Jan-08

80

08

09 10
Ov er 5 Yr

11

RMB

6
03

10% abov e

04

05

06

RMB/USD

Source: CEIC, HSBC

Source: CEIC, HSBC

9. RMB spot vs forward rate

10. Effective exchange rate

RMB/USD

6.95

07

20

07

08

RMB/JPY100

09

10

11

RMB/EUR

%y oy

15

6.85

10

6.75

6.65

Spot
Source: CEIC, HSBC

12M NDF

Mar-11

Nov-10

Jul-10

Mar-10

Nov-09

-10
Jul-09

6.45
Mar-09

-5
Nov-08

6.55

-15
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
REER
NEER
Source: CEIC, HSBC

27

abc

Macro
China Economics
29 April 2011

Employment and income

China created 11.68m new jobs in 2010, and the official urban

registered unemployment ratio fell from 4.3% at end-2009 to 4.1%

at end-4Q, close to the pre-crisis level
Robust growth has been continuously lifting labour demand and

wages, reflected in expanded employment components of HSBC

China PMI readings and rapid wage growth
Household income saw rapid growth in 1Q, particularly rural

households, up 14.3% y-o-y in real terms, doubling the rate of

7.1% for urban households

2. Creation of jobs

GDP (LHS)

Urban new jobs (LHS)

Urban unemploy ment rate (RHS)

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Employment, by major industry

4. Real household income per capita

800

mil person

18

GDP (RHS)

YTD, %y oy

600
13
400
8
200
3

0
2003

2004 2005

Primary
Source: CEIC, HSBC

28

2006

Secondary

2007 2008

2009

06

07

Tertiary

08
Urban

Source: CEIC, HSBC

Mar-11

5
Dec-10

Jul-10

Jan-11

Jul-09

Jan-10

Jul-08

Jan-09

Jul-07

Jan-08

Jul-06

Jan-07

Jan-06

Jul-05

3.9
Jan-05

Sep-10

4.0

Jun-10

13
11

Mar-10

4.1

Dec-09

4.2

Sep-09

4.3
12

'000 person (YTD)

14,000
12,000
10,000
8,000
6,000
4,000
2,000
0

Jun-09

4.4

Mar-09

Dec-08

%y oy

15

Sep-08

1. Economic growth vs unemployment

09

10
Rural

abc

Macro
China Economics
29 April 2011

5. Economic growth vs real wage growth

20

6. Average wage growth

%y oy

YTD, %y oy

21
18

15

15
10

12
9
07

08

09

Real av erage w age grow th (YTD)

10

02

11

03

04

GDP

05

06

7. Wage growth, by enterprise

8. Wage growth, by region

SOE

Collectiv e ow ned units

Mar-05

Jun-04

10

Sep-03

10

Dec-02

15

Mar-02

15

Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11

20

Eastern

Others

Central

Source: CEIC, HSBC

9. Household income distribution Urban

10. Household income distribution Rural

100%

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

0%

<RMB25k
Source: CEIC, HSBC

2006

RMB25-55K

2007

2008

RMB55-85K

2009
>RMB85K

11

Central

Source: CEIC, HSBC

2005

10

YTD, %y oy

25

20

09
Real

Source: CEIC, HSBC

YTD, %y oy

08

Nominal

Source: CEIC, HSBC

25

07

2006
<RMB1K

2007
RMB1-2.5K

Sep-09

06

Dec-08

05

Mar-08

04

Jun-07

03

Sep-06

02

Dec-05

2008

2009
RMB>5000

Source: CEIC, HSBC

29

abc

Macro
China Economics
29 April 2011

Asset markets
Property markets show no sign of meaningful cooling despite

the third round of property tightening measures introduced at

end-January
HSBCs equity strategist turned positive for the first time in 2Q11

and also raised the financial sector to overweight from

underweight; forecast for SHCOMP revised up to 3,300 at yearend based on higher valuation multiples

1. Stock indices

2. Stock index vs money supply

6,000

250

5,000

200

4,000

150

%y oy

%y oy

100

3,000

50

2,000

1,000

-50

-100
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Shanghai (SSE)

98 99 00 01 02 03 04 05 06 07 08 09 10 11
SSE index (LHS)
M1 (RHS)

Shenzhen (SZSE)

Source: CEIC, HSBC

Source: CEIC, HSBC

3. Price-to-earnings ratio

4. Market capitalisation, by stock exchange

80

40
35
30
25
20
15
10
5
0

40,000

RMB bn

70
30,000

60
50

20,000

40
30

10,000

20
-

10
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
SSE
Source: CEIC, HSBC

30

06

SZSE

07
SSE

Source: CEIC, HSBC

08

09

10
SZSE

11

abc

Macro
China Economics
29 April 2011

5. Capital raised, by stock exchange

6. Real estate index

RMB bn

160

2000=100

108
106

120

104
80

102

40

100
98
96

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

94
04

SSE

05

06

SZSE

07
08
09
Real estate climate index

Source: CEIC, HSBC

Source: CEIC, HSBC

7. Property prices

8. Property sales vs money supply

% y oy

% y oy

40
30
20
10
0

Source: CEIC, HSBC

Source: CEIC, HSBC

9. Property prices vs money supply

10. Property investment vs property started

% mom

% mom, 3mma

50

98 99 00 01 02 03 04 05 06 07 08 09 10 11
Property sales (YTD, LHS)
M1 (RHS)

Property price index

2.0

11

60
40
20
0
-20

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jul-07

Jan-08

Jan-07

140
120
100
80

Jul-06

Jul-05

Jan-06

% y oy

14
12
10
8
6
4
2
0
-2
-4

10

YTD, % y oy

80
60

1.5

1.0
2
0.5

40
20
0

Property price index (LHS)

Source: CEIC, HSBC

M1 (SA, RHS)

-20
Jul-10

Jan-11

Jan-10

Jul-09

Jan-09

Jul-08

Jul-07

Property inv estment

Jan-08

Jul-06

Jan-07

Jan-06

Jul-05

-40
Jan-05

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jul-07

Jan-08

Jan-07

0
Jul-06

-0.5
Jan-06

Jul-05

0.0

Floor space started

Source: CEIC, HSBC

31

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Macro
China Economics
29 April 2011

This page has been left blank intentionally

32

Macro
China Economics
29 April 2011

abc

Data and forecasts

33

abc

Macro
China Economics
29 April 2011

China
Macro framework
2006

2007

2008

2009

2010

2011e

2012e

11.6
2716
2077
13.7
24.5
16.2
50.1
4.1

14.2
3498
2661
16.8
25.8
17.1
51.0
4.0

9.6
4524
3424
21.6
26.1
12.9
51.4
4.2

9.2
4994
3760
15.5
30.5
12.9
50.0
4.3

10.3
5886
4410
18.5
24.5
15.7
50.5
4.1

8.9
6892
5138
19.0
21.5
13.2
50.0
4.3

8.6
8051
5973
17.0
19
12.5
50.0
4.3

Production, demand and employment

GDP growth (% y-o-y)
Nominal GDP (USDbn)
GDP per capita (USD)
Nominal retail sales (% y-o-y)
Fixed asset investment (nominal, % y-o-y)
Industrial production (excl. small enterprises % y-o-y)
Gross domestic saving (% GDP)
Unemployment rate, average (%)
Prices & wages
CPI, average (% y-o-y)
CPI, end-year (% y-o-y)
PPI, end-year (% y-o-y)
Manufacturing wages, nominal (% y-o-y)

1.5

4.8

5.9

-0.7

3.3

3.9

2.9

2.8
3.1
14.0

6.5
5.4
16.2

1.2
-1.1
17.0

1.9
1.7
9.0

4.6
5.9
13.0

2.2
5.8
13

3.0
4.3
12

13.2
18.1
6.12
6.48
7.81
7.96
10.3
10.01

13.6
17.5
7.47
7.74
7.30
7.60
10.66
10.56

12.4
16.7
5.31
5.76
6.82
6.94
9.48
10.11

12.1
26.5
5.31
5.76
6.83
6.83
9.77
9.54

14.9
23.7
5.81
6.16
6.61
6.72
8.82
9.18

11.0
17.9
6.56
7.00
6.35
6.48
8.89
8.86

11.0
15.5
6.56
7.00
6.15
6.25
8.61
8.75

969
792
178
253
9.5
73
2.7
12.2
27.2
19.9
1,066
15.0

1,219
956
263
372
11.0
84
2.5
13.4
25.8
20.8
1,528
17.7

1,429
1,133
296
426
9.4
108
2.4
11.8
17.2
18.5
1,946
18.9

1,202
1,006
196
284
5.8
90
1.8
7.6
-15.9
-11.3
2,399
27.9

1578
1394
184.5
250
4.2
106
1.8
6.0
31.4
38.6
2,850
24.8

1863
1673
189.9
260
3.8
122
1.8
5.6
18.0
20.0
3150
23.8

2086
1940
145.8
210
2.6
134
1.7
5.3
12.0
16.0
3300
22.7

200
323
17.2
-1.0

188
374
14.4
0.6

181
375
10.8
-0.4

212
350
6.3
-2.2

245
330
4.2
-2.5

292
360
4.1
-2.0

292
360
4.8
-1.7

Money, FX & interest rates

Central bank money M0, average (%)
Broad money supply M2, average (%)
Policy rate, end-year (%)
5yr yield, end-year (%)
RMB /USD, end-year
RMB /USD, average
RMB /EUR, end-year
RMB /EUR, average
External sector
Merchandise exports (USDbn)
Merchandise imports (USDbn)
Trade balance (USDbn)
Current account balance (USDbn)
Current account balance (% GDP)
Net FDI (USDbn)
Net FDI (% GDP)
Current account balance plus FDI (% GDP)
Exports (% y-o-y)
Imports (% y-o-y)
International FX reserves (USDbn)
Import cover (months)
Public and external solvency indicators
Commercial banks FX assets (USDbn)
Gross external debt (USDbn)
Short term external debt (% of intl reserves)
Consolidated government balance (% GDP)
Source: HSBC

34

abc

Macro
China Economics
29 April 2011

Global
Key forecasts
________________________GDP ________________________ ______________________ Inflation _______________________
2009
2010e
2011e
2012e
2009
2010e
2011e
2012e
World (nominal GDP weights)
World (PPP weights)
Developed
Emerging
North America
US
Canada
Latin America
Mexico
Brazil
Argentina
Chile
Western Europe
Eurozone
Germany
France
Italy
Spain
Other Western Europe
UK
Norway
Sweden
Switzerland
EMEA
Czech Republic
Hungary
Poland
Russia
Turkey
Ukraine
Egypt*
Israel
Saudi Arabia
UAE
South Africa
Asia-Pacific
Japan
Australia
New Zealand
Asia ex Japan
China
Asia ex Japan & China
Hong Kong
India
Indonesia
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam

-2.4
-0.6
-3.7
1.9
-2.6
-2.6
-2.5
-3.4
-6.1
-0.6
-2.9
-1.5
-4.1
-4.0
-4.7
-2.5
-5.1
-3.7
-4.4
-5.0
-1.3
-5.3
-1.9
-3.4
-4.1
-6.5
1.7
-7.9
-4.7
-15.1
4.7
0.8
0.1
-2.9
-1.8
0.3
-6.3
1.3
-1.7
5.7
9.2
2.4
-2.8
687
4.5
-1.7
1.1
-1.3
0.2
-1.9
-2.3
5.3

3.8
5.0
2.6
7.4
2.9
2.9
3.0
6.6
5.1
7.8
9.0
5.3
1.8
1.7
3.5
1.6
1.0
-0.2
2.0
1.7
0.1
5.1
2.7
3.9
2.1
1.0
3.8
3.2
7.7
5.5
5.1
4.0
3.6
1.7
2.6
6.7
4.3
2.7
1.6
8.9
10.3
7.8
7.0
9.2
6.0
7.1
6.8
14.8
6.1
9.6
7.9
6.7

3.3
4.3
2.3
6.4
3.3
3.3
2.6
4.8
4.1
5.1
5.8
6.0
1.5
1.5
2.1
1.5
0.8
0.7
1.8
1.7
1.1
3.4
2.1
4.1
2.0
2.5
3.9
4.8
4.2
4.0
6.0
3.4
4.4
3.3
3.5
4.8
1.1
3.6
2.8
7.6
8.9
6.2
5.2
8.0
6.4
5.1
5.0
5.2
4.9
4.7
5.3
7.5

3.5
4.3
2.5
6.2
3.4
3.4
2.9
4.4
4.1
4.5
5.0
5.0
1.7
1.6
2.0
1.8
1.0
1.2
1.8
1.8
2.0
2.5
2.0
3.9
2.3
3.1
3.4
3.5
4.3
5.1
6.1
4.8
4.8
4.1
3.1
5.2
2.0
4.1
3.5
7.5
8.6
6.3
4.6
8.2
6.3
4.9
5.8
5.8
4.8
4.5
4.3
7.8

1.0
1.9
0.0
4.8
-0.3
-0.3
0.3
6.3
5.3
4.9
15.9
0.3
0.6
0.3
0.2
0.1
0.8
-0.2
1.5
2.2
2.2
-0.3
-0.5
7.7
1.0
4.2
3.5
11.7
6.3
16.0
15.5
3.9
5.1
1.3
7.2
0.8
-1.3
1.9
2.1
2.6
-0.7
5.1
0.5
10.9
4.8
0.6
3.3
0.6
2.8
-0.9
-0.8
7.1

2.4
3.3
1.4
5.7
1.7
1.6
1.8
7.0
4.1
4.9
23.2
1.4
1.8
1.6
1.1
1.7
1.6
1.7
2.5
3.3
2.3
1.1
0.7
5.9
1.4
4.9
2.6
6.9
8.7
9.5
11.7
2.7
5.4
0.7
4.3
2.0
-1.1
2.9
2.3
5.0
3.3
6.2
2.3
11.8
5.1
1.8
4.0
2.8
3.0
1.0
3.3
9.0

2.5
3.3
1.4
6.0
1.5
0.9
1.6
8.0
4.1
5.4
25.5
2.5
2.0
1.8
1.5
1.7
1.5
1.5
2.5
3.2
1.6
1.9
0.9
6.7
2.2
3.2
2.9
9.5
7.1
8.7
11.9
3.3
6.5
2.1
3.9
2.3
-0.7
3.1
4.0
4.8
3.9
5.4
4.4
7.1
6.3
3.0
4.5
3.2
3.8
2.3
3.8
9.9

2.2
2.8
1.2
5.5
1.1
1.1
2.0
7.5
3.5
4.6
22.5
2.9
1.7
1.7
1.6
1.8
1.7
1.6
1.8
1.9
2.3
2.3
1.5
6.5
2.4
3.4
2.8
8.5
6.4
8.0
11.1
3.1
7.0
3.3
5.5
2.1
-0.5
3.1
2.3
4.0
2.9
4.8
4.2
6.1
5.2
2.2
4.8
2.9
3.3
2.0
3.1
9.4

Notes: Calendar year; except for * which is based on Egyptian fiscal year (July-June); global and regional aggregates are calculated using chain nominal GDP (USD) weights.
Source: HSBC

35

Macro
China Economics
29 April 2011

Notes

36

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Macro
China Economics
29 April 2011

abc

Notes

37

Macro
China Economics
29 April 2011

abc

Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the
opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their
personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Hongbin Qu

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investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls
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affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative
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For disclosures in respect of any company mentioned in this report, please see the most recently published report on that
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Additional disclosures
1
2
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38

This report is dated as at 29 April 2011.

All market data included in this report are dated as at close 28 April 2011, unless otherwise indicated in the report.
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Macro
China Economics
29 April 2011

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Disclaimer
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abc

Global Economics Research Team

Global

Global Emerging Markets

Stephen King
Global Head of Economics
+44 20 7991 6700
stephen.king@hsbcib.com

Pablo Goldberg
Head of Global EM Research
+1 212 525 8729
pablo.a.goldberg@hsbc.com

Karen Ward
Senior Global Economist
+44 20 7991 3692
karen.ward@hsbcib.com

Emerging Europe, Middle East and Africa

Madhur Jha
+44 20 7991 6755

madhur.jha@hsbcib.com

Europe
Janet Henry
Chief European Economist
+44 20 7991 6711
janet.henry@hsbcib.com
Astrid Schilo
+44 20 7991 6708

astrid.schilo@hsbcib.com

Alexander Morozov
+7 495 783 8855
alexander.morozov@hsbc.com
Murat Ulgen
+90 212 376 4619

muratulgen@hsbc.com.tr

Simon Williams
+971 4 507 7614

simon.williams@hsbc.com

Liz Martins
+971 4 423 6928

liz.martins@hsbc.com

Latin America
Argentina
Javier Finkman
Chief Economist, South America ex-Brazil
+54 11 4344 8144
javier.finkman@hsbc.com.ar

Germany
Lothar Hessler
+49 21 1910 2906

lothar.hessler@hsbc.de

France
Mathilde Lemoine
+33 1 4070 3266

mathilde.lemoine@hsbc.fr

Ramiro D Blazquez
Senior Economist
+54 11 4348 5759

ramiro.blazquez@hsbc.com.ar

stuart1.green@hsbcib.com

Jorge Morgenstern
Senior Economist
+54 11 4130 9229

jorge.morgenstern@hsbc.com.ar

Brazil
Andre Loes
Chief Economist
+55 11 3371 8184

andre.a.loes@hsbc.com.br

Constantin Jancso
Senior Economist
+55 11 3371 8183

constantin.c.jancso@hsbc.com.br

ryan.wang@us.hsbc.com

Marcos Fernandes
+55 11 6847 9787

marcos.r.fernandes@hsbc.com.br

stewart_hall@hsbc.ca

Mexico
Sergio Martin
Chief Economist
+52 55 5721 2164

sergio.martinm@hsbc.com.mx

Central America
Lorena Dominguez
Economist
+52 55 5721 2172

lorena.dominguez@hsbc.com.mx

United Kingdom
Stuart Green
+44 20 7991 6718
Andrew Grantham
+44 20 7991 2170

andrew.grantham@hsbcib.com

North America
Kevin Logan
Chief US Economist
+1 212 525 3195
kevin.r.logan@us.hsbc.com
Ryan Wang
+1 212 525 3181
Stewart Hall
+1 416 868 7523

Asia Pacific
Qu Hongbin
Managing Director, Co-head Asian Economics Research and
Chief Economist Greater China
+852 2822 2025
hongbinqu@hsbc.com.hk
Frederic Neumann
Managing Director, Co-head Asian Economics Research
+852 2822 4556
fredericneumann@hsbc.com.hk
Leif Eskesen
Chief Economist, India & ASEAN
+65 6239 0840
leifeskesen@hsbc.com.sg
Paul Bloxham
Chief Economist, Australia and New Zealand
+61 2925 52635
paulbloxham@hsbc.com.au
Donna Kwok
+852 2996 6621

donnahjkwok@hsbc.com.hk

Sherman Chan
+852 2996 6975

shermanwkchan@hsbc.com.hk

Wellian Wiranto
+65 6230 2879

wellianwiranto@hsbc.com.sg

Seiji Shiraishi
+81 3 5203 3802

seiji.shiraishi@hsbc.co.jp

Yukiko Tani
+81 3 5203 3827

yukiko.tani@hsbc.co.jp

Sun Junwei
Associate
Sophia Ma
Associate