Mark McFarland, Chief Economist for Coutts, comments on Chinese exports
ChChina’s latest data set adds conviction to our overweight stance on Asia Pacific markets. China’s economy grew at an annual rate of 8% when comparing the quarter ending June to the previous one. Economists had expected growth to rise from 5.6% in the first quarter to 7.2%. A stronger-than-expected performance by Chinese exporters was responsible for the outperformance.
That China has grown faster than in the first quarter shouldn’t come as a surprise. We have maintained that the end of the severe winter in the US and the expected improvement in global trade that should follow bode well for China in the middle of the year. China’s policymakers have also slackened their commitment to reform and added stimulus through fiscal and monetary policy.
Yesterday’s lending and money supply data were also above expectations. The broad definition of money supply (M2) grew 14.7% year-on-year and total credit in circulation exceeded expectations as restrictions on lending and trust fund activities were relaxed in April and May. Retail sales growth has also proved remarkably resilient considering Beijing’s tenacity in clamping down on largesse. A slowdown in retail spending is clearly evident across the border in relatively glitzy Hong Kong, but not it seems in onshore outlets across mainland China.
China’s authorities have gone soft on reform in favour of boosting growth, at least for now. This short-term palliative will be celebrated by markets despite the widespread acknowledgement that slower growth is a must if China is to meet its stated objective of reducing the country’s over-reliance on cheap, loan-financed capital investment. This data supports our positive view of Asian markets but we will continue to look for the necessary reforms for the longer-term outlook.