After a very weak H1 2013, several data confirmed that Chinese activity is recovering and this trend could be sustained in the coming months thanks to a global recovery, an increase of government spending and an accommodative monetary policy.
1/ The price of basic materials shows that demand has become stronger since the end of June which suggests an improvement of industrial production:
- Imported Iron Ore Prices rose 14% since the end of June while Domestic steel prices increased by 9.5%.
- Copper prices is still up 3.2% on the same period.
Source: Bloomberg
2/ This move was confirmed this morning by the rebound of imports in July:
- Imports Y/Y: +10.9% v -0.1%e (-0.7% prior).
- Jul Iron Ore imports record 73.1M tons, +26.4% y/y, record high > June Iron Ore imports 62.3M tons, +6.8% y/y.
- Jul Copper, Product imports 410.7k tons v 380.0K tons m/m, +12% y/y > June Copper, Product imports 379.9k tons, +9.7% y/y.
3/ Exports also rose in July thanks to the recovery in EU and acceleration in US:
- Exports Y/Y: +5.1% v +0.5%e (-3.1% prior).
- Exports to US: 5.2% y/y in July > -5.4% y/y in June.
- Exports to EU: 2.8% y/y in July > -8.3% y/y in June.
4/ The main indicators (Baltic Dry Index, Global PMI) suggest that global growth is also accelerating:
- On a Y/Y basis (MM-20 days), Baltic Dry index turned positive in July and rose 18% yesterday.
- JPMorgan’s Global Manufacturing PMI edged up to 50.8 in July from 50.6 in June.
5/ Government spending will accelerate in H2. As an example, State-owned railway giant China Railway Corporation (CRC) has announced a plan to raise fixed-asset investment to 660 billion yuan (106.5 billion U.S. dollars) this year to boost railway development.
6/ Since the end of June, PBOC has adopted a more accommodative policy and could cut RRR in the coming months:
- Today: PBoC to issue CNY15B in 14-day reserve repos in today’s session; For the week, injecting CNY20B v CNY136B in prior week.
- On August 2: China PBoC Q2 Monetary Report: Reiterates to continue to implement monetary policy and fine-tune action when necessary via numerous tools (including RRR).
