China Output Seen Easing Slightly as Govt Eyes Reforms: Preview
(Bloomberg) -- Chinese industrial production likely slowed in April, though should remain in govt’s comfort zone given tolerance for slightly weaker growth as structural reforms kick in, analysts say.
- China is trying to cut overcapacity in bloated state-owned enterprise sector and rein in excessive debt; authorities including NDRC are speeding up plan to deal with unproductive “zombie companies” and cut overcapacity, China Securities Journal reported this week
- Median est. in Bloomberg survey is for industrial output at +6.5% y/y in April vs +6.8% in March; ests. range from +3.8% to +7.0%
- Weaker PMI and exports data suggest there will also be slowdown in industrial production, Citic Bank chief economist Liao Qun says
- Sees April IP up 6.3-6.4% y/y
- GDP growth still on track as service sector is growing faster
- Authorities may tolerate gradual slowdown in GDP growth; sees at 6.7%-6.8% for 2016; China clocked 6.9% growth last year
- Structural reforms include killing “zombie cos.” and helping laid-off workers join services industry
- NOTE: April manufacturing PMI at 50.1 vs est. 50.3 and 50.2 in March; exports down 1.8% y/y vs 0.0% est. and +11.5% in March
- Daxiao Li, head of research at Yingda Securities, expects manufacturing activity to moderate slightly with structural reforms in progress
- Reforms include policy support for emerging industries, and more deleveraging and cuts in overcapacity sectors
- Forecasts industrial output growth at 6.2%-6.5%
- Recovery in global growth, fueled by loose monetary policies, will support Chinese economy
- Not expecting broad-based easing such as policy rate cuts for now; target-based stimulus is more flexible
- Heavy industries weren’t affected by reform agenda in April, though there are headwinds ahead, ANZ Greater China senior economist Raymond Yeung says
- Sees April IP at +6.8% y/y, same as March
- PMI has high correlation with IP, and it was still in expansionary territory in April at 50.1
- Expects commodity-related industries to suffer as govt starts to address high leverage; will be consolidation in overcapacity sectors; less-productive, low-quality “zombie” and small cos. will shut down, while giants should survive and thrive
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
People Liao Qun (China CITIC Bank International Ltd)
Raymond Yeung (Australia & New Zealand Banking Group Ltd)
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