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Global economic warming

2017-08-30

In the first half of 2017, the actual growth rate of GDP in China was 6.9%, and the nominal growth rate rose to 11.8%, both of which were higher than last year. The profit of non-financial enterprises was resumed after the decline of the last two years. At the same time, tightened financial regulation has been further established this year, and the restrictions on various shadow banking businesses have increased. The growth rate of M2 has dropped to less than 10% in recent years. Although monetary tightening has restrained some of the financing activities, it does not change the steady growth of the domestic economy as a whole. The price trend is split, the price of industrial products is rising as a whole, and the profit of industrial enterprises is improved greatly. In the aspect of consumer goods, because of the reform of the price formation mechanism of agricultural products, some food prices are facing structural downside pressure, which can inhibit the CPI. The overall economy is growing steadily and inflation pressure is moderate.


This year, domestic investors are concerned about some policy factors, and the most important is financial regulation. Since last year, a series of measures to tighten financial supervision have been introduced, and the recent national financial work conference has established the policy tone of maintaining financial stability and strengthening financial supervision in the next five years. Since the beginning of the year, the shadow banking regulation has intensified, which has led to a rapid rise of market interest rate. Credit debt issuance and off balance sheet financing channels have been greatly impacted. The intensity of financing can be maintained, mainly on the rapid growth of intra bank loans. But investors worry that even if the interest rate of bond market goes further, even bank credit will be affected. Real estate regulation is also an important concern. Since the "9.30 New Deal" last year, limited purchase limits have gradually escalated, and the rate of housing loans in some cities floated, and the volume of housing transactions in major and middle cities was reduced significantly. At present, real estate sales in three or four tier cities and small and medium-sized cities are still booming, making the national sales data remain moderate growth. Investors can't help worrying that the cooling of the housing market in large and medium-sized cities will gradually spread to the three or four tier cities, thereby dragging the needs of the second half of the economy.


Despite all these risks, China's economic performance is still beyond expectations. In the context of strict financial regulation and the implementation of real estate regulation, the Citigroup economic accident index, which measure the actual performance of the economic indicators and the relative expectations of the previous market, shows that China's economic data have generally defeated the market expectations since the beginning of the year, which depicts the "resilience" of the current Chinese economy from one corner. "Beyond expectation. Behind the positive data is the fact that structural contradictions have eased. Different from the problem of high excess capacity and high housing inventory in the previous round of recession, the investment of land supply and manufacturing industry in China has been reduced from 2013 to 2016, especially behind the sluggish private investment, the structural adjustment of the market is spontaneous, and the implementation of the leveraged policy has accelerated the restructuring of the industry since last year. Meanwhile, the three or four line of urban real estate sales has also eased the problem of housing inventory. Since the first half of the year, the investment behavior in China has been restrained in general, and the investment in land leasing and manufacturing is only mild, and there is still a certain space for increasing the supply of land and related investment in the future. The current inflation pressure is not high, the strict financial supervision and the real estate tightening are the rebalance between the "steady growth" and "de leveraging and risk prevention". It is an active "squeeze bubble" under the target of growth, and it is the "demining" work for the future economic reform. Therefore, the regulation of financial institutions' leverage and part of urban real estate will be gradual, avoiding systemic shocks and national investment and financing constraints. Once the downturn is more than expected, there are also enough policy tools to reinvigorate the economy.


In addition, some investors believe that China's economy has been in close contact with the "replenishment behavior" since 16 years, and that the decline in the inventory cycle this year will lead to both economic growth and commodity prices falling.  However, the actual situation is that the "stock decline" is different from the market. In the near future, the stock of finished products made in China did not show a high trend. On the contrary, the stock of steel and other products fell to the historical low, and the pressure of future inventory was not much. In real estate, despite the slowdown in the sales margin, the early supply of land supply continues to shrink, and the housing market will be warm as stock drops, and there is a demand for land replenishment, so the investment in real estate will continue to maintain a moderate growth. We are more optimistic about the sustainability of the economic activity, and the CICC is expected to reach 10.6% and 6.8% in the nominal and actual GDP growth rate for the whole year.


The overall recovery of overseas economies, CPI declined.


The global economy continues the trend of overall recovery in the past year, and at the same time, the differentiation of early stage countries has begun to converge. Since the beginning of the year, the US employment market has been booming, but the demand for credit and consumption is weak, and the GDP growth in the first quarter reproduces the "seasonal trough". Europe, Japan and emerging markets all showed strong signs of recovery. The euro area's economic activity has been rising. In a loose monetary environment, its GDP, consumption and credit growth all surpass the US and become the leader of developed markets in recent years. Japan's industrial and export activities are strong, and the international demand for recovery has improved its landscape. As the emerging market is recovering, demand is rising with the rest of the world. At the same time, some economies such as India have pushed ahead in structural reform, and long-term growth potential has been promoted.


The main job market in the world has been in a good state, but the expected salary and inflation have not yet come up. The CPI growth rate of the major economies in recent years has gone down. Global oil prices and large scale


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