德银-中国-宏观经济-利率上升背后的原因是什么-20171128-Deutsche_Bank-China_Macro_in_Charts_What’s_behind_the_rising_interest_rate_21页_2mb

Summary of "What's behind the rising interest rate?"

Core Content

The document analyzes the reasons behind the recent increase in interest rates in China, specifically the rise in yields for 10-year CGB and 10-year policy bank bonds, which increased by 40bps and 70bps, respectively, over the past two months. Despite economic growth slowing in October and inflation remaining below 2%, the rate increase surprised the market. The key factors driving this increase are financial sector deleveraging and rising inflation expectations.

Main Points

Financial Sector Deleveraging

• Leverage Measurement: Financial sector leverage is measured by the gap between broad credit and M2 growth. The narrowing of this gap indicates ongoing deleveraging.
• Leading Indicator: The inverted credit-M2 gap has been identified as a leading indicator for bond yields, with a lag of about 3 months.
• Bond Purchases: Between 2014 and 2017, small banks and asset management funds accounted for 82% of the incremental holdings in CGBs and policy bank bonds.
• Reduction in Purchases: In late 2016 and early 2017, these entities reduced bond purchases, leading to a decline in bond prices and an increase in yields.
• Regulatory Impact: New regulations on asset management products may have further reduced bond purchases, contributing to the rise in yields.

Inflation Expectations

• Nonfood CPI Inflation: Nonfood CPI inflation has been rising steadily.
• Food Prices: The benign headline CPI inflation was due to lower-than-expected food prices, particularly pork.
• Stabilization of Food Prices: Recent stabilization of food prices may indicate a potential rise in CPI inflation.
• Forecast: The baseline forecast suggests CPI inflation could reach 3% in early 2018 around the Chinese New Year, then decline in the rest of the year. If inflation remains high in Q2, it could lead to increased concerns from investors and policymakers.

Key Information

• Rate Increase: The yield of the 10-year CDB bond rose above 5%.
• Market Reaction: The rate increase caught the market by surprise despite slower economic growth and low inflation.
• Regulatory Changes: New regulations on asset management products have impacted bond purchases and yields.
• Inflation Forecast: CPI inflation is expected to rise in early 2018, with potential for further concerns if it remains elevated.

Additional Sections

• China Macro in Charts (CMiC): A comprehensive chart pack covering four themes:

  1. Economic activities and price development
  2. Monetary and capital market development
  3. Trade, capital flows, and RMB exchange rate
  4. Fiscal development

• Recent Publications:

  • China Fiscal Series 1: Revisiting the LGFV debt issue, 6 Nov
  • A big step to open up China's financial sector, 10 Nov
  • Property sales growth turned negative in October, 14 Nov
  • Risks to watch in the next six months, 15 Nov, 20 Nov, 23 Nov

• Featured Charts:

  • Figure 1: Growth of broad credit and M2
  • Figure 2: Gap between credit and M2 growth and CGB yield
  • Figure 3: Bond holders of CGB and policy bank bonds
  • Figure 4: Bond purchase and CGB yield
  • Figure 5: Inflation forecast
  • Figure 6: Inflation, vegetable and pork

• Key Macroeconomic Indicators:

  • Economic Activities and Price Development:
    • Real GDP growth
    • Fixed asset investment (FAI) growth
    • Industrial production and retail sales growth
    • CPI and PPI inflation
  • Monetary and Capital Market:
    • M1 and M2 growth
    • Reserve money and money multiplier
    • New RMB loans and total social financing (TSF)
    • Shadow banking indicators (credit, M2, TSF)
    • Interest rates and bond yields
  • Trade and Capital Flows:
    • Goods and services trade
    • RMB exchange rate (USDCNY, USDCNH, CNH forward points)
    • FX reserves and capital flow estimates
  • Fiscal Indicators:
    • Fiscal balance
    • Government revenue and expenditure
    • 12-month rolling fiscal balance

• Table of Key Macroeconomic Indicators:

  • Historical values and forecasts for various indicators from 2014 to 2018.
  • Includes real GDP growth, FAI growth, industrial production growth, retail sales growth, CPI, PPI, M2 growth, credit growth, and more.

Analysts

• Zhiwei Zhang, PhD: Chief Economist, +852-2203 8308
• Yi Xiong, PhD: Economist, +852-2203 6139

Important Disclosures

• The report is prepared by Deutsche Bank and is based on public sources.
• No representation is made regarding the accuracy or completeness of the information.
• Opinions, estimates, and projections are subject to change without notice.
• The report does not consider individual investment objectives or needs.
• Deutsche Bank may act as principal or agent in transactions related to the securities discussed.

Risk Factors

• Macroeconomic fluctuations pose significant risks to fixed or variable interest rate instruments.
• Inflation, fiscal funding needs, and FX depreciation are common adverse shocks.
• Counterparty exposure, issuer creditworthiness, and regulatory changes are also important risk factors.
• Derivative transactions involve market, counterparty default, and illiquidity risks.
• Investors should seek legal and financial advice before entering into such transactions.