Monthly activity data so far for December shows China’s rebound from the pandemic continues to be in the ‘sweet spot’ of strong economic growth coupled with few signs of overheating.
Source: Bank of Singapore, Bloomberg
China’s trade surplus hit a new record high of USD78.2 billion in December as export growth remained strong.
The chart above shows exports expanded at 18.1%YoY last month dipping only modestly from 21.1% in November. Import growth picked up but only from 4.5%YoY to 6.5%YoY. China’s record trade surplus reflects strong demand for China’s consumer goods while the pandemic holds back foreign competitors.
December’s data also showed inflation was only 0.2%YoY while total social financing - credit growth - eased from 13.6%YoY to 13.3%YoY.
Source: Bank of Singapore, Bloomberg
The chart above shows credit expansion and money supply growth appear to be peaking. China’s central and local governments will likely issue less bonds this year to finance public investments as the recovering economy requires less state support.
Thus, total social financing growth is expected to slow to 10-11%YoY over the course of 2021.
Source: Bank of Singapore, Bloomberg
Strong activity, peaking credit growth and very low inflation will allow the People’s Bank of China to keep benchmark interest rates unchanged.
As the above chart shows, the PBoC cut rates by just 30bps during 2020. It therefore faces little near term pressure to raise interest rates despite China’s V-shaped rebound. This month Governor Yi told Xinhua News monetary policy would be stable in 2021. The PBoC’s neutral stance will thus likely continue to benefit risk assets in the new year.
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