UOBKH/AR09 [web] - ChartNexus

Economic Review & Outlook 2010
C H I N A
Review of 2009
China beat its economic growth target for 2009 after GDP
grew 10.7% in the last quarter compared with the average
growth rate of 7.0% in the first three quarters. Overall, GDP
grew 8.7%, with total value of Rmb33,535.3b. Consumer Price
Index (CPI) turned positive in November from -1.8% in July
and peaked at 1.9% in December. For the whole year, the
CPI fell by 0.7%. Producer Price Index (PPI) turned positive
in December, +1.7% compared to -8.2% in July. For the full
year, PPI decreased by 5.4%.
The Rmb4t stimulus plan and expansionary monetary policy
have resulted in massive liquidity in the economy. In 2009,
Chinese banks lent out a record Rmb9.59t worth of new loans,
representing a 31.7% increase. In monetary terms, broad
money (M2) was Rmb 60.6t, a 27.7% jump compared to 17.8%
increase in 2008. M1 was Rmb22t, 32.4% higher vs only 9.1%
increase in 2008.
In terms of trade, total exports volume was US$1,201.7b in 2009,
a 16% drop compared with 2008 while total imports volume
dropped by 11.2% to US$1,005.6b. However, the gap in trade
balance narrowed by US$99.4b to US$196.1b. Based on monthly
data, imports began to climb since May and jumped 55.6% in
December whereas exports turned positive eventually in
December (for the first time since Aug 08).
Fixed Assets Investment (FAI) reached Rmb22,484.6b in 2009,
up 30.1%, attributed to extraordinary fiscal policy. Meanwhile,
growth rate accelerated by 4.6ppt over the previous year.
Consumption level was stable. Total retail sales of consumer
goods reached Rmb12,534.3b for the year, an increase of 15.5%,
or 16.9% in real value compared with 2008. Housing prices
soared as well, indicating a potential asset price bubble and rising
inflationary pressure.
Grain production level was up for the sixth year to 530.82m
tonnes, a 0.4% growth. The financial subsidies and higher
purchase prices encouraged farmers to put more efforts in
grain production.
Outlook for 2010
The economy is likely to grow more quickly in 1Q10 and 2Q10
before a mild slowdown in 2H10, given the low base in 1H09.
The sky-high volume of the increase in new loans in 2009 will
show a decline in 2010. Rapid money supply growth may force
the People’s Bank of China (PBOC) to take pre-emptive action
in an effort to enforce China’s goal of ‘moderate’ money supply
growth, particularly given the signs of recovery in the US and
EU in 2H10 and increasing chances of Required Reserve Ratio
(RRR) hikes, with anticipated interest rate increase. Exports
remain uncertain in 1H10, given debt crisis in Europe.
However, better economic figures from the US and emerging
economies may boost consumer confidence. In terms of
exchange rate, given the current circumstances, especially
pressures from western countries and an enlarged trading
surplus, the Rmb is likely to appreciate in the second half of
this year.
Stock Market Review for 2009
The Shanghai A-share Index soared dramatically by 77% in
2009, closing at 3,277.14. The market received a significant
boost since the announcement of the Rmb4t economic stimulus
package in 4Q08 as well as the introduction of 10 industrial
(automobile, steel, electronics and information, logistics,
textile, equipment manufacturing, non-ferrous metals, light
industry, petrochemicals and shipping) restructuring and
revitalisation plan in Jan-Feb 09. However, the enormous
amount of new loan increases has raised concerns about
growing inflationary pressure at the end of the year.
The Shanghai A-share Index peaked at around 3,478 in early
August (vs the low of 1,849 at the beginning of the year). IPO
launches restarted in June after a standstill for eight months.
The Second Board was finally launched in Shenzhen after a
ten-year delay. To support the stock market, China Huijin
Investment, a government-owned entity, purchased shares of
three state-owned banks: Industrial and Commercial Bank of
China (ICBC), China Construction Bank (CCB) and Bank of
China (BOC) in the A-share market in October, indicating it
would like to purchase more shares within the next 12 months.
In Hong Kong, China H-share Index also performed well,
increasing 62%.
Stock Market Outlook for 2010
In 2010, China’s robust economic and accelerating corporate
earnings growth, inexpensive valuations, Rmb appreciation
potential and continued economic reforms which will spark
positive structural changes are important bull market signals.
Amid the slow global growth, China is likely to deliver an
outstanding GDP growth of over 9% and corporate earnings
growth of more than 25% in 2010. These make China a
stronger magnet for global portfolio and hot money over the
next 12 months.
However, bull markets do not go straight up. In 2010, the China
market faces three uncertain factors: a) an overdue US$
rebound that may temporarily reverse fund flows to emerging
markets, b) a possible fine-tuning of China’s monetary policy
that may trigger profit-taking following the hefty gains in 2009
and c) rising protectionism that may cause the Rmb to
appreciate more rapidly than expected. We believe a magnitude
of over 15% correction is possible and it is more likely to
happen in 2H10 for the China H-share Index.
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