巴黎银行-中国-宏观策略-中国经济增长即将见底-20190314-9页_1mb

China - Growth Trough in Sight Summary

Core Content

This document provides an analysis of China's economic performance in early 2019, highlighting the ongoing slowdown in growth, the impact of external and internal factors, and the potential for a modest recovery in the second half of the year. It also includes a trade idea for investors and legal disclosures regarding the nature of the document and its use.

Main Economic Indicators

• GDP Growth: Continued to slow, but appears to be within the official target range of 6.0-6.5%.
• Domestic Demand: Held up steadily, providing some support to the economy.
• Export Growth: Plunged significantly, with a 4.6% y/y contraction in January–February 2019, compared to 9.1% in 2018.
• Industrial Production: Softened to 5.3% y/y, the slowest since March 2009, primarily due to the export slump.
• Fixed Asset Investment (FAI): Grew by 6.1% y/y in January–February, up from 5.9% y/y last year, driven by increased property and infrastructure investment.
• Property Sales: Contracted by 3.6% y/y, marking the first negative growth since May 2015.
• Property Investment: Grew by 11.6% y/y, suggesting developers are accelerating construction to manage financing constraints.
• Auto Sales: Contracted by 2.8% y/y in January–February, with a 15.1% y/y decline in production, indicating a stronger destocking effect than retail sales data.
• Retail Sales: Grew by 8.2% y/y, the same as in December 2018, but with a notable slowdown in home-related product sales.
• Furniture Sales: Grew by 0.7% y/y, down from 10.1% y/y in 2018.
• Home Appliances Sales: Fell to 3.3% y/y, compared to 8.9% y/y in 2018.
• Construction and Decorating Materials Sales: Declined to 6.6% y/y, down from 8.1% y/y in 2018.

Key Drivers of the Slowdown

• Export Slump: Caused by existing tariffs, uncertainty over the US-China trade deal, and a global semiconductor downturn.
• Property Sector Downturn: A cyclical slowdown in property sales and a more pronounced decline in construction activity.
• Destocking Effects: Particularly in the auto sector, led to a significant drop in production despite stable retail sales.
• Weaker PPI Data: Contributed to reduced manufacturing investment and lower profit growth.
• Industrial Utilisation Rate: Continued to decline, affecting manufacturers' capital expenditure enthusiasm.

Policy and Market Outlook

• Infrastructure Investment: Expected to rebound, supported by increased special local government bond quotas and improved base effects.
• Fiscal Policy: The RMB2trn tax cuts are yet to be fully implemented, offering potential support for the economy.
• Monetary Policy: Further easing is not expected in the near term, as fiscal support is seen as more critical.
• Trade Deal Expectations: A US-China trade deal in Q2 is anticipated to alleviate some of the export pressures and improve business and consumer confidence.
• Economic Rebound: A modest rebound in Q3 is expected, driven by improved base effects, policy support, and a more stable market environment.

Trade Idea

• Investment Opportunity: Investors aligning with the analysis may consider paying 5-year repo NDIRS at 2.95%, targeting 3.25%, with a stop loss at 2.80%.
• Carry: -1.7 basis points per month.
• Main Risk: A significant drop in the Chinese stock market.

Legal and Regulatory Disclosures

• Non-Independent Research: This document is non-independent research for regulatory purposes and is a marketing communication.
• Use Restrictions: It is intended for professional clients and eligible counterparties, and may not be used by non-qualified investors.
• Confidentiality: The information is provided on a strictly confidential basis and may not be copied or distributed without prior written consent.
• Conflicts of Interest: BNPP may have financial interests in the securities discussed, and may engage in transactions inconsistent with the views expressed.
• Investment Risks: The document highlights the risks associated with various investment products, including high volatility, liquidity issues, and potential for significant losses.

Conclusion

China's economy is experiencing a slowdown, driven by external trade tensions, internal destocking, and a weak property sector. While the pace of decline is manageable, the outlook suggests a potential rebound in the second half of 2019, supported by policy measures and improved base effects. Investors are advised to consider the trade idea with caution, acknowledging the associated risks. The document is a marketing communication and not investment research, with detailed legal disclosures to ensure proper understanding and use.