China Growth Tracker – Rates Cuts and Fiscal Stimulus as Indices Sit Weak

We published a note on how to track Chinese growth in real time using financial and commodity market prices. In these weekly reports, we update the indicators to help us track growth.

Summary

• China has moved forwards with rate cuts and new fiscal stimulus in an effort to boost activity.
• As it stands, our market-based China growth tracker remains deeply negative while our economic data-based tracker has lost its positive momentum. Our high-frequency China reopening index is some way off its 2023 highs.

Weak Activity Battles Stimulus Measures

China activity data proved significantly weaker than expected this week, with industrial production (+3.6% YTD YoY: 0.3ppt miss), retail sales (+9.3% YTD YoY: 0.3ppt miss), fixed assets excluding rural investment (+4.0% YTD YoY: 0.4ppt miss), and property investment (-7.2% YTD YoY: 0.5ppt miss) all underperformed. However, the market did not react too much to the releases: the surprise OMO rate cut (by 10bp to 1.9%) on Tuesday telegraphed a strong sign that weakness lay ahead. MLF (by 10bp to 2.65%) and 1Y and 5Y Prime Rate (by 10bp to 3.55% and 4.20%, respectively) rate cuts followed.

Announcements of fiscal stimulus came close behind. China will issue CNY one trillion of special treasury bonds to fund infrastructure and indebted local governments. They will also make secondary home purchases easier in smaller cities.

We expect rate cuts and fiscal stimulus to feed through into our China growth trackers. As it stands, our market-based China growth tracker remains deeply negative while our economic data-based China growth tracker is near neutral (Charts and Tables 1 and 2). Meanwhile, our high-frequency China reopening index remains some distance below 2023 highs (Charts 3 and 4). In conclusion, our trackers portray a pessimistic picture of Chinese growth but could improve from here.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Ben Ford is Researcher at Macro Hive. Ben studied BSc Financial Mathematics at Cardiff University and MSc Finance at Cass Business School, his dissertations were on the tails of GARCH volatility models, and foreign exchange investment strategies during crises, respectively.

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