- FAI: High-tech manufacturing and services deliver much higher growth
- IP: SME manufacturing in expansion for four consecutive months
- Retail sales: LNY traffic and revenue hit historical highs
- Export: strong external orders in the pipeline
- Money Supply: ample liquidity after LNY
Fixed Asset Investment (FAI)
From Jan to Feb 2024, China FAI growth registered 4.2% YoY, mainly led by SOE FAI growth at 7.3% YoY. It is worth highlighting that high-tech FAI grew 10% in manufacturing and 7.8% in services. Among manufacturing, information chemical products expanded 43.2% while aerospace, aircraft, and equipment grew 33.1%. Among services, special technology services and information services grew at 36.2% and 16.1%.
Property investment dropped 9% YoY in Jan-Feb, and developer funding was down by 24.1%. New residential floor space sold and revenue were down 24.8% YoY and 32.7% YoY. Headwinds remain for the property sector.
Industrial Production (IP)
Industrial production growth accelerated from 6.8% YoY to 7.0% YoY in Jan-Feb. Manufacturing, which grew by 7.4%, is the core driver. In particular, high-tech manufacturing increased notably by 7.7%. 3D-printing, chargers, and electronics leapfrogged by 49.5%, 41.8%, and 41.5% respectively.
Looking ahead, the private sector and SMEs should regain traction. Caixin manufacturing PMI expanded for four conservative months from 50.8 in Jan to 50.9 in Feb, pointing to improved business expectations among small and private enterprises.
Retail sales
Retail sales growth stayed at 5.5% in Jan-Feb after the dissipation of the low base effect in Dec. The Lunar New Year holidays were marked by historical record high activities and spending. Both the number of domestic tourists and tourism revenues finally left the pandemic doldrums behind, rising well above the 2019 levels by 19% and 7%, respectively.
Catering sales grew 12.4% YoY in Jan-Feb. Latest mobility data on inter-city highway traffic and domestic flight operations show upward momentum, with the best YTD reading in five years. With consumption sentiment recovered, leisure-related items such as communication equipment, liquor and tobacco, and culture, sports, and entertainment soared 16.2%, 13.7%, and 11.3% YoY, respectively. Looking ahead, potential government support such as subsidies for consumable upgrades will lift retail sales growth in the months ahead.
Export
External demand is also surprising to the upside. Outward shipments in Jan and Feb registered 7.1% YoY growth. Beyond the low base effect, the regional electronics downturn has been reaching its nadir. Notably, general machinery and equipment, integrated circuits, and home appliances saw significant growth rates of 32.0%, 24.3%, and 20.8% YoY, respectively.
Electronic exports within the ASEAN-6 region reverted from a 2.4% YoY decline in Dec to a 7.8% YoY increase in Jan. Moreover, the overall ASEAN manufacturing PMI returned to expansionary territory in both January and February.
Employment
Labour market conditions remain broadly stable. The unemployment rate edged up from 5.1% in Dec23 to 5.3% in Jan-Feb24 but remains below government’s latest target of 5.5%. The rate of migrant workers slightly edged from historical low of 4.7% to 4.8%. The average working hour per week fell from 49 hours to 48 hours, albeit partly driven by fewer working days during the Lunar New Year holiday.
Money supply
Liquidity condition improved relatively after the Lunar New Year. Combining Jan-Feb data to net out the seasonal effect, M1 growth accelerated from 1.3% YoY in Dec to 3.6% in Jan-Feb, improvement in short-term liquidity. The narrowing gap between M1 and M2 growth also pointed to stronger liquidity needs from investment.
Inflation
CPI inflation returned to positive territory for the first time since Sep 2023, reflecting improving consumption sentiment. After adjusting for seasonal effects, our estimates indicate that core inflation for Jan-Feb accelerated to 0.9% from 0.6% YoY in Dec 2023, marking the highest reading since mid-2022. Palpable improvement in clothing, education, cultural and entertainment, and other goods and services see palpable improvement of 1.6%, 2.6%, and 2.9%, respectively. These point to buoyant consumption sentiment.
One source of worry is the elevated real funding costs. PPI fell further from -2.5% YoY in Jan to -2.7% YoY in Feb, driving the real policy rate (1Y LPR – PPI) to 6.15%. New increases in corporate loans thereby dropped by 14% YoY in Jan-Feb.
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Nathan Chow 周洪禮
Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
[email protected]
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