Broad-based recovery gains momentum
The latest data suggests that the economy carried high growth rates into 2013. Exports were up 23.6% year-on-year in January and February combined, with shipments to the EU and US improving sharply. International trade seems to be supporting industrial activity; the manufacturing Purchasing Managers Indexes (PMIs) remain in expansion territory.
We expect the new administration to maintain an accommodative fiscal and monetary policy to support the recovery. The government has announced US$150b of infrastructure projects, which we expect to be implemented in 2013 and 2014. Last year’s cuts in interest rates and bank reserve requirements are leading to a gradual pickup in lending, and we expect the central bank to continue to limit the rate of appreciation of the renminbi.
The gain in momentum through 2013 is likely to be broad-based. The external sector is set to provide increased impetus. Exports to the EU, in particular, have been a drag on the economy. But, with prospects stabilizing in Europe and optimism rising in the US and the Asia-Pacific region, growth in China’s key markets is likely to accelerate. This will boost exports and the industrial sector. We expect the economy to grow by more than 8% in the medium term.
Mainland China: inflation
Source: China Bureau of Statistics; Haver Analytics.
Hong Kong: stock market
Source: Hang Seng Index Services Limited; Haver Analytics.
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