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China Macro Monitor Summary

Core Content

China's economy continued to recover in March 2023, with customer flow and service activity rebounding in line with expectations. The GDP growth for 2023 is forecasted at 5.4%, with quarterly YoY growth rates of 3.8%, 7.7%, 4.6%, and 5.6%. Inflation is expected to remain low, with CPI growth at around 1% in March-April and a further decline in PPI. The economic recovery is service-driven, while exports remain weak due to global economic slowdown and credit tightening.

Main Points

Economic Recovery

• GDP Growth: Continued recovery in March, with quarterly growth rates of 3.8%.
• Service Activity: Improved significantly, with service index growth at 5.8% YoY.
• Retail Sales: Increased by 4.5% YoY in March, showing signs of recovery.
• Construction Activity: Improved due to strong infrastructure investment and recovery in property development.

Housing Market

• Sales Growth: Housing sales rose sharply in March, especially in higher-tier cities, driven by low base, easing credit policy, and pent-up demand.
• Regional Disparity: Higher-tier cities saw stronger sales, while lower-tier cities experienced slower growth.
• Second-hand Sales: Second-hand housing sales in ten major cities rebounded to levels seen in 2019.

Auto Sales

• Overall Weakness: Auto sales remained weak in March, with a 1% YoY drop.
• NEV Growth: New energy vehicle sales rose 10% YoY in March and 18% YoY in 1Q23.
• Second-hand Auto Sales: Continued recovery, with a 86.6% YoY increase in Shanghai.

Exports

• Weakness: Exports remained weak in March due to global economic slowdown and US banking sector turmoil.
• Forecast: Exports are expected to drop 3.5% in 2023 after a 7% increase in 2022.

Liquidity and RMB Exchange Rates

• Credit Policy: The PBOC eased liquidity through an RRR cut, indicating support for credit and growth.
• RMB Trends: The RMB is expected to see a moderate rebound against the US dollar this year, with a forecast of 6.6 at the end of 2023.
• Term Spreads: The Sino-US long-term rate spread is expected to rebound as China's economy continues to recover and the US economy slows.

Key Information

Inflation

• CPI: Expected to remain low at around 1% in March-April, with a gradual increase in H223.
• PPI: Likely to drop by 2.5% - 3% in the next three months, with a forecast of -0.5% for 2023.

Credit and Liquidity

• New Credit: Continued to rebound in March, with a 11.8% YoY increase in RMB loans.
• M2 Growth: Expected to mitigate due to reduced risk aversion.
• Social Financing: Continued to rebound, with a 5.2% YoY increase in March.

Passenger Flow and Traffic

• Domestic Flights: Returned to a steady level.
• International Flights: Rebounded at a faster rate in the second half of March due to tourism recovery.
• Movie Market: Rebounded in the second half of March, with daily film audience up 97.9% YoY.
• Traffic Congestion: Increased 10% YoY in March, down from 14.3% in February.
• Subway Passenger Flow: Continued to rebound in most cities.

Commodity Prices

• Decline: Commodity prices further declined in March due to global banking sector turmoil and potential overseas recession.
• Pork and Vegetables: Prices continued to decline.
• Crude Oil and Natural Gas: Much lower than the same period in 2022.

US Economic Outlook

• Recession Risk: Increased due to banking sector turmoil, with inverted yield curves.
• Term Spreads: US 10Y/3M and 10Y/2Y term spreads remained negative, signaling recession expectations.
• Fed Policy: May hike federal fund rates by 25bps in May to control inflation.

Figures and Data Highlights

• Figure 1: Monthly Economic Forecast shows GDP growth, VAIO, service index, retail sales, and trade data.
• Figure 2: China's GDP and Inflation data across years, showing the forecast for 2023.
• Figure 3: Economic Activity Index highlights recovery in service and consumption.
• Figure 4: CPI and PPI growth indicates low inflation and continued PPI decline.
• Figure 5: Inflation data by sector, including residential CPI and other indicators.
• Figure 6: Factory activity and coal consumption data show gradual improvement.
• Figure 7-10: Passenger flow, movie audience, and traffic congestion data.
• Figure 11-16: Housing and auto sales, as well as commodity prices and construction activity.
• Figure 17-20: Commodity price trends and global economic indicators.
• Figure 21-29: US economic indicators, including term spreads, mortgage rates, and Fed policy.
• Figure 30-42: Leading indicators for US economy and commodity price trends.
• Figure 43-48: PBOC policy rates, money market rates, and RMB exchange rate trends.

Analyst Certification and Disclaimers

• The analyst certifies that the views expressed accurately reflect their personal opinions and that no compensation is directly or indirectly linked to the views.
• The analyst confirms no trading in the stocks covered within 30 days prior to the report's release and no trading for 3 days after.