I. CHINA’S MACROECONOMIC PERFORMANCE
? China’s economy was bouncing back. February recorded a manufacturing PMI of 52.6, 2.5 percentage points higher than in January. Large-sized manufacturers’ PMI was 53.7, 1.4 percentage points up from January; that of medium-sized manufacturers was 52.0, 3.4 percentage points higher than in January; and that of small ones, 51.2, 4.0 percentage points up from January.
? Industrial production picked up. From January to February, the value added of industries above designated scale nationwide grew by 2.4% year on year, 1.1 percentage points higher than in December 2022. Specifically, value added by manufacturing increased by 2.1% year on year; that of mining, by 4.7%; that of power, heat, gas and water suppliers, by 2.4%; that of general and specialized equipment manufacturers, by -1.3% and 3.9% respectively; and that of high-tech manufacturers, by 0.5%. From January to December of 2022, total profit of industrial enterprises above designated scale decreased by 4.0% year on year.
? Import and export both fell. From January to February, USD-denominated export decreased year on year by 6.8%, 22.9 percentage points down from the same period in 2022; import dropped year on year by 10.2%, 27.0 percentage points down from the same period in 2022. China pocketed a trade surplus of 116.89 billion USD from January to February, 7.35 billion USD higher than the same period of last year.
? Consumption started to turn around. During January and February, China’s total retail sales of consumer goods picked up year on year by 3.5%, 5.3 percentage points up from December 2022. Specifically, retail sales of goods rose year on year by 2.9%, 3.0 percentage points up from last December; revenue of catering services ascended year on year by 9.2%, 23.3 percentage points higher than in last December. Automobile sales fell year on year by 9.4%, 14.0 percentage points down from last December. From January to February, total online retail sales nationwide increased year on year by 6.2%; online sales of physical goods, accounting for 22.7% in total retail sales of consumer goods, climbed year on year by 5.3%.
? Fixed asset investment maintained stable growth, with the decline in real estate investment pulling to a stop. From January to February, nationwide fixed asset investment grew at a cumulative year-on-year rate of 5.5%, 0.4 percentage points up from the 2022 level. Private fixed asset investment grew at a cumulative year-on-year rate of 0.8%, 0.1 percentage points down from that of last year. Specifically, investment in the manufacturing sector increased cumulatively by 8.1% year on year; infrastructure investment in the tertiary sector, by 9.0%; and real estate investment, by -5.7%, 4.3 percentage points less than that in 2022. From January to February, floor areas sold of commercial housing went down cumulatively by 3.6% year on year, 20.7 percentage less than that in 2022; floor areas of newly started commercial housing fell at a cumulative year-on-year rate of 9.4%, 30.0 percentage points less than that in 2022.
? CPI fell sharply, and PPI remained low. February CPI grew 1.0% year on year, down 1.1 percentage points from January. Non-food prices grew 0.6% year on year, down 0.6 percentage points from January; food prices grew 2.6% year on year, down 3.6 percentage points from the previous month. The core CPI excluding food and energy grew 0.6% year on year, down 0.4 percentage points from January, while the PPI grew -1.4% year on year in February, recording a 0.6 percentage-point bigger drop than the decrease in January.
II. MACROECONOMIC ENVIRONMENT
? The global economy rebounded. The J.P. Morgan Global Composite PMI rose to 52.1 in February, up 2.4 percentage points from January; the J.P. Morgan Global Manufacturing PMI 50.0, up 0.9 percentage points. Manufacturing PMI in the United States rebounded to 47.7 in February from 47.4 in January, while that in the Eurozone fell to 48.5 in February from 48.8 in January, and that in Japan, dropped from 48.9 in January to 47.7 in February. CRB spot commodity prices fell 0.7% month on month.
? The growth of social financing climbed. The year-on-year growth rate of M1 in February was 5.8%, down 0.9 percentage points from January; that of M2 was 12.9%, up 0.3 percentage points from January. Social financing growth was 9.9% year on year, up 0.5 percentage points from January. February recorded newly added social financing of 3.2 trillion yuan, a decrease of 2.8 trillion yuan from January. Among them, newly issued government bonds (government bonds + local government bonds + special bonds) totaled 800 billion yuan, up 400 billion yuan from January; newly issued corporate bonds stood at 2.1 trillion yuan (LGFVs included), down 3.2 trillion yuan from January; new debt of the household sector was 200 billion yuan, down 50 billion yuan from January.
? The 7-day repo rate rebounded. The 7-day interbank pledged repo rate averaged 2.38% in February, up 25 basis points from January. The short-term liquidity spread represented by the difference between the 3-month SHIBOR and the 3-month government bond yield was 0.39%, down 12 basis points from January. The term spread, represented by the difference between the 10-year government bond yield and the one-year government bond yield dropped by 6 basis points from January to 0.70%; the credit spread, represented by the difference between the 10-year AAA-rated bond yield and the 10-year government bond yield fell by 6 basis points from January to 0.74%.
III. NEAR-TERM OUTLOOK AND RISK WARNING
1. China’s economy is in gradual recovery after the adjustment of the pandemic control policy.
2. The high-level real interest rate is a drag on the overall credit expansion, and endogenous demand remains weak.
3. The downturn in the external market puts pressure on China’s export.
IV. POLICY SUGGESTIONS
1. Lower interest rate by 25 bps each time until the employment and growth targets are hit.
2. Issue new types of fiscally subsidized bonds and policy loans to support investment in public and quasi-public infrastructure projects that feature limited returns.
3. Set up special funds to help market entities battered during the pandemic get back on their feet; increase the amount of living allowance for low-income groups.
4. Stabilize normal financing for real estate companies; introduce market-based competition on mortgage rates to reduce households’ debt burdens. To resolve the developers’ debt burdens, conduct pilot projects to convert some of the developers’ housing stock into government-subsidized housing.
