There’ll be renewed confirmation this week that the Chinese economy continues to slow.
The mid month ‘flash’ report on Chinese manufacturing from HSBC/Markit is expected to show a small dip into contraction (a reading under 50) when it’s released tomorrow.
The final November reading was 50, slap bang on the line dividing expansion (above) from contraction (below).
There will also be attention on the widening impact of falling oil prices in China after another round of price cuts and tax changes at the weekend.
On the face of it, lower prices are good news for China because the country imports much of its energy needs, especially oil (over 6 million barrels a day).
Mid-year that was costing the country well over $US35 billion a month – in November it was down around 30%, and for this month, the bill will be down around 40%.
On the face of it that’s a big positive, especially with China a country with a growing cohort of car owners, plus the vast energy needs of servicing business and industry every day by road, rail and air.
To that end China raised taxes on most oil products from last Saturday, the second increase in a month, to try and offset the falling price (and maintain government revenue).
The government said taxes on gasoline, naphtha, diesel, jet fuel and fuel oil, solvent oil and lubricating oil rose by varying amounts, but the retail prices of gasoline and diesel were lowered after adding the higher tax.
Even in China it is politically difficult to push up the cost of energy to consumers, so the state does it by lifting taxes to industry.
But this also underlies the growing deflation fear in China – while the tax rise will reduce the size of the decline in retail energy prices, it will have little impact except on government revenue.
Industry is in the grip of intense price deflation, so the tax rises will bite harder because demand is weak, retail sales sluggish and companies large and small will have to absorb the tax hikes, which will help maintain deflationary pressures.
The government’s move came after the sharp fall in global oil prices on Friday. There has now been at least 10 official reductions in retail petrol and diesel prices since mid year in China.
Friday also saw the release of generally weak data for production and urban investment, and a slight improvement in retail sales and a big rise in bank lending.
As well there was more gloomy news from the country’s troubled property sector with the value of new property construction and home sales falling as the property sector continues to slow.
The 12% fall in the value of sales last month, from the same month in 2013, was much greater than forecast and much more than the 3.1% drop in October, year on year.
Fixed asset investment, a key driver of growth that includes real estate investment, rose 15.8% in the 11 months from January to November from a year earlier, down slightly from the 15.9% growth seen in the first 10 months of the year.
China’s National Bureau of Statistics said Friday that industrial production growth slowed to 7.2% year-over-year in November, below market expectations and down from growth of 7.7% in October. But it wasn’t as weak as the 6.9% annual rate reported in August.
Some of the latest fall was explained by the way the central government ordered industry in and around Beijing to close for the APEC meeting in November to improve air quality in the capital.
That helps explain the 0.2% fall in crude steel production to just over 66 million tonnes and the 0.6% rise in electricity output in the months, against the 1.9% growth rate in preceding months.
Friday’s data release came a day after the nation’s top policy making body, the Standing Committee, said at a policy meeting that they would try to balance steady economic growth and structural reforms next year.
While the government didn’t announce a 2015 growth target at the meeting which was called to set economic priorities for next year, it is widely expected to be below this year’s level of about 7.5%.
And figures for bank lending showed a surprisingly large increase last month, especially given the way the country’s central bank continues to inject billions of dollars into the financial system to encourage banks to lend.
Friday’s figures showed Chinese banks issued 852.7 billion yuan ($US137.5 billion) of new yuan loans in November, up from 548.3 billion yuan in October. Economists had forecast 650 billion yuan of new loans.
In November, total social financing, a broad measure of credit in the economy, came to 1.15 trillion yuan, up from 662.7 billion yuan in October, showing the size of the injection of new funds from the central bank and the central government.
