China Economy - "Significant Consumption Slowdown; October Retail Data
Pls see attached the full PDF research report, below is a highlight:
◆ Money supply growth slowed further due to faster economic downturn: M2 growth slowed from 15.3% in September to 15.0% in October, the lowest since May 2005 and below market expectations (15.2%, Chart 1). Five months of continued deceleration prove our view that the effect of accommodative monetary policies is constrained by slowing money velocity during an economic downturn (Chart 2).
◆ Lending growth stable but below market expectations and facing downside risks. RMB lending grew by Rmb181.9bn in October and the growth rate picked up 0.1ppt MoM to 14.6%. This is slightly below market expectations since the regulator removed lending limits in October. Despite government encouragement of bank lending, we believe bank lending growth face downside risks as commercial banks will likely take action to control risk in the economic down-cycle. In fact, lending growth slowed significantly despite IR hikes during economic down-cycles in the past (Chart 3 and 4).
◆ Expanding share of time deposits and falling loan/deposit ratio: Household deposits increased by Rmb315.5bn in October with an accelerating growth rate YTD. Time deposits now make up 57% of total deposits, up from 52% at the beginning of the year (Chart 5), indicating declining interest in investment and growing expectations for interest rate cuts. As a result, growth of M1 (mainly demand deposits) slowed to 8.9% in October, a 10-year low. The gap between M1 and M2 growth was the highest since May 2006, eroding liquidity in capital markets. Bank loan/deposit ratios fell at an accelerated pace.
◆ Monetary policy response to intensify: The Chinese government stated last Sunday that it would adopt a “moderately loose” monetary policy stance (vs. “prudent” in 1998), supporting our view that monetary policy responses should be greater and faster than before. We maintain our call that the PBoC may cut interest rates by 216bp and the RRR by 350~550bp by the end of 2009, with the size of each IR cut larger than 27bp.
◆ The appreciation of the trade-weighted nominal RMB exchange rate is expected to slow to 2~3%, and the RMB/USD rate depends on the strength of the dollar. A 2% RMB deprecation against the dollar is possible in 2009.
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发表于 2008-11-14 08:51
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