China GDP grew by 7.5%YoY in 2Q and 7.6%YoY in 1H, in line with expectations and extending the moderate deceleration since late 2012. Contribution from net exports fell from 1.1ppts in 1Q to 0.1ppt in 1H, highlighting a weakening of external demand in 2Q. FAI slowed further in Jun and retail sales continued to improve. The State Council is expected to hold an executive meeting on Wed to set the policy tone for 2H. The government will likely come up with policies to support investment in subway, shanty town renovation and environment protection. PBOC may come up with measures to address the rising cost of funding following the liquidity crunch in Jun.
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However, it remains to be seen whether the measures would be sufficient to defend 7.5% growth according to Shuang Ding. The monetary data last Fri and PBOC comments over the weekend indicate credit conditions may become less accommodative in 2H. Growth may continue to decelerate in 2H, and many expect annual growth of 7.4%.
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China: other data
IP growth decelerated to 8.9%YoY in Jun — This brings 1H IP growth to 9.3%YoY, 0.2ppt and 1.2ppts lower than 1Q13 and 1H12, respectively. The heavy industry outperformed the light industry in 1H (9.6%YoY vs. 8.4%YoY). IP expanded at 10.5%YoY in western area, faster than eastern (8.7%) and central region (10.0%). Specifically, power production accelerated to 6.0%YoY in June, steel production slowed to 7.2%YoY, and cement production grew by 8.8%YoY, broadly consistent with IP slowdown. Weak PMI reading indicates IP may remain sluggish in the months ahead.
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A little different take on the China GDP from Dong Tao and Weishen Deng, research analysts at CS Asia:
We were little surprised by the data, as it indicated that the spikes in SHIBOR and the much tightened credit in June had little impact on production and investment. More impact could surface in July, but still given that banks lent out little in 2H June, infrastructure investment and inventory rebuild seemed to have slowed down, in our view. The good news is that income growth remained robust, with urban population seeing a 9.1% YTD income increase in nominal terms and 6.5% in real terms, while the rural population saw 11.9% (nominal) and 9.2% (real) real income growth during 1H13. That lifted retail sales by 12.7% and 11.4% in nominal and real growth for 1H13 and 13.3% (nominal YoY) and 11.7% (real YoY) for June.
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Furthermore the analysts note:
The government emphasised two points about this set of data. (1) The major economic indicators are within the expected ranges. (2) The moderation in growth is a result of pro-active structural adjustment. In other words, Beijing does not believe that the current growth momentum is threatening the bottom line of policy growth target, perceived around 7.0% YoY by China watchers. That seems to imply that Beijing is in no hurry to boost growth.
Under the leadership of Premier Li, the government is more reluctant to launch large scale fiscal stimulus,
unless it is absolutely necessary, and is more keen to improve the efficiency of current monetary and fiscal policies. We do not expect imminent expansionary policies to boost growth momentum.
Still, we believe that growth momentum is probably weaker than the headline suggests and could weaken further amid tightened liquidity conditions. Should our scenario play out with modest growth deceleration we would expect some form of policy reactions, including providing additional liquidity to local governments in late summer, as the country embraces the third plenary session of the party congress in October, though scale should be no comparison to what was launched in 2009. We have no plan to revise our growth forecast, that currently stands at 7.4% for 2013.
Overall, the numbers appear to present a slightly mixed picture, although one which is slightly positive (assuming you are among the believers).
