International | Jul 15 2010
By Greg Peel
Chinese data is a messy business, given the preference from the Chinese National Bureau of Statistics to report all numbers as year-on-year and year-on-year to date, as opposed to the Western preference for month-on-month and quarter-on quarter data.
The upshot is that China today first released a first half 2010 GDP growth rate of 11.1% over the first half 2010. Given a known first quarter growth rate of 11.9%, this suggested a second quarter growth rate of 10.5%, in line with consensus. But half an hour later when the second quarter number was released, it read only 10.3%.
There's no point in speculating as to why the difference, given no one puts much stock in a number that takes China two weeks to calculate when it takes everyone else three months. But that's all the market has to go on.
Further year-on-year figures were released for monthly data today.
China's consumer price index grew by 2.9% yoy in June, down from 3.1% in May. The producer price index grew by 6.4%, down from 7.1%.
Retail sales grew by 18.3%, down from 18.7%, and industrial production grew by 13.7%, down from 16.5%.
All of these numbers fell short of economist expectations.
The first impression one gets is that a move down in GDP growth rate from 11.9% to 10.3% is in line with Beijing's intention to reduce growth to a more sedate 8% over 2010 in order to prevent a bubble. Various tightening measures deployed over the course of the year are clearly working, in combination with the slowdown in Europe and apparent deceleration of US growth.
Industrial production in June was nevertheless notably less at 13.7% than the consensus expectation of 15.1%. Retail sales were disappointing at 18.3% compared with 18.8% consensus, given the world is relying on the Chinese domestic economy to be the fundamental global growth driver on the assumption Chinese exports will slow. The IP number backs up such slowing.
Inflation was nevertheless also lower than expected, with a CPI of 2.9% missing 3.3% expectation and a PPI of 6.4% missing 6.8% expectation.
While retail sales are disappointing, the good news from this data is Beijing has little reason to tighten further. Given the experience of runaway inflation in early 2008, 2010's gradual turnaround in inflation back to positive has caused concern. The lower IP number further suggest no need to tighten.
But as far as global markets are concerned, it's all a bit ying and yang anyway. We know that Beijing wants to slow the Chinese economy, so lower numbers are not a surprise. The world would like higher numbers, but then higher numbers would mean more tightening. Low numbers cause concern, but low numbers mean no tightening. In the end we can go around in circles but we'll still end up at the same place.
Concerns over the intended Chinese slowdown have also been heightened by slowing in Europe in particular, and in the US, but realistically Chinese monetary policy will take conditions in its two major export markets into consideration before adjustments are deemed necessary or not. If weaker export demand affects a Chinese slowing anyway, then Beijing won't tighten aggressively.
All in all, and as the Australian stock market's reaction suggests, these numbers are nothing to get too excited about either way.
