A Run Down of the Chinese Overall Economic Development Report

A Run Down of the Chinese Overall Economic Development Report

By: Simon Furman | Where To Trade | On:21-10-2014 09:22
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Key Highlights

  • Chinese GDP for Q3 slows down by 0.2% to 7.3% YoY
  • CNH, AUD bullish at the close of Asia
  • 7.3% YoY Growth beats expectations at 7.2% YoY
  • Growth meets Authorities range targets
  • Broadening of the economic stimulus avoided
  • Import to Export growth imbalance
  • Potential trouble ahead for major Chinese trading partners

 

During the Asian session today, all eyes were on china as the markets eagerly awaited release of the quarterly economic performance for 2014. China is a major contributor I the world economy, growth in the Chinese economy signals health potential in the world economy. If china faces stagnation it could spell trouble for the global markets particularly the major Chinese trading partners which gives us excellent trading opportunities.

The quarterly GDP growth rate for Q3 was reported at 7.3 year on year which represents a slowdown 0.2% from the last reading at 7.5% year on year for the second quarter. This was better than the expected growth rate at 7.2% year on year.  For most economies, the 7.3% growth rate would represent a huge increase in GDP but The Chinese Authorities have a lower target of 7.2% growth rate and this latest reading is just barely within the lower range. These mildly positive readings have seen the Chinese Renminbi and the Australian dollar appreciate up to the close of the Asian session.

 

Where To Trade - CH GDP Growth

 

Meeting the authorities’ targets means that there will be no broadening of the limited stimulus support that The Peoples Bank Of China (PBOC) has been undertaking. On the 14th of this month the PBOC revealed that it would be pumping liquidity into some selected lender banks.

The gradual slowing of the GDP growth that China see as necessary for a restructuring also for long term sustainability of the economy is well on track. The slowing pace of growth that is anticipated to become ‘the new normal’ spells trouble for most of the commodity dependent economies that are heavily dependent on the heavy Chinese demand for their commodities. Top of the list includes Australia, the Australian dollar strengthened relative to the US dollar on the release of the better than expected Chinese growth. However on the longer term view, the Australian economy faces serious challenges as nearly 29% of its exports are absorbed in china. This is in the back drop of a falling commodity price index.

A closer examination of the report reveals that the foreign trade from china appreciated by 3.3% year on year. A closer examination of the individual contribution of each component to this growth reveals that there was uneven distribution in growth between exports and imports. Net Chinese exports grew at a 5.1% rate while imports only registered a 1.6 % net increase. This is a worrying trend for exporters to China.

 

Wrap up

The trade balance with the majority of its traders is bound to remain in the red territory. This means that the value of the Renminbi ought to appreciate gradually against other major currencies. This assumption however must be qualified by the reality that the Chinese currency is highly regulated and its ascent is controlled by the Chinese Authorities who now hold the world’s largest foreign reserves. The Renminbi appreciates at a predictable annual rate against the dollar which we find to be still unnaturally slow. A great approach is to maintain a bullish long term bias to the Renminbi against other currencies.

Simon Furman

Simon Furman

Think Global - Act Local

Simon Furman is one of the best financial analyst with 27 years of trading experience

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