China closing 2016 on a solid note – TDS

Research Team at TDS, notes that China’s PMI suite for October was strong across the board, all series posting above neutral 50 for the third consecutive month.

Key Quotes

“For October, the PMIs ranged from 51.2 for the official and Caixin manufacturing PMI, to 54 for the official non-manufacturing PMI. The average PMI of 52.2 was the highest since September 2014.”

“The October real activity suite, in contrast, failed to deliver on upbeat expectations. Export and import levels remain lower compared with a year ago, with exports to top trading partners the U.S. Europe and HK being on a downward trajectory for at least the last twelve months. No wonder CNY is being allow to depreciate so rapidly. Imports of key commodities also sagged in October.”

“Industrial production and retail sales also failed to spark along with those widespread upbeat PMIs. October industrial production growth remained stuck at 6.1%/yr despite widespread expectations for a tick higher, while retail sales growth sagged back to 10%/yr.”

“Today’s data suite missed market expectations by a decent margin, but activity is still reasonably solid as we head into 2017. Bloomberg’s Chinese GDP growth proxy – once closely monitored and made headlines when it sunk to 6.4% in early 2015, but has been ignored since it began tracking above the official GPD measure - appears to have consolidated at just over 7%.”

“The correlation between the BBG series and the official GDP measure is very high for the Dec qtr and we could see Q4 GDP print closer to 7%, the top of government’s 6½-7%/yr growth target. Going further, if the new Finance Minister takes the expected approach and cools the overheated housing sector via imposing a land tax rather than local government selling of land to raise revenue, then the economy is well-positioned to “cope” with the property sector underperforming in 2017.”

“Dec qtr GDP is not released until January 2017, but we have a growing conviction that GDP may again surprise “to the upside” despite the recent less-than-stellar October activity prints.”