7/28/2019 SEB cuts China 2013 and 2014 growth forecast

1/3

China: Flat Growth to 2014TUESDAY

11 JUNE 2013

EDITORSean Yokota

Head of Asia Strategy

sean.yokota@seb.se

+65 6505 0583

We revise down Chinas 2013 GDP forecast to 7.5% from 7.9% and 2014 GDP to 7.5% from7.7%. We see 3 drivers to the Chinese economy a) external demand through exports b) domesticdemand measured through construction and c) monetary policy. They are all turning lower. First,exports have and will decelerate since they were elevated from likely over billing to take advantageof RMB appreciation. Authorities have clamped this down and exports will decelerate. Second, thebiggest change well likely see is in domestic demand where our SEB China Construction Indicator

has turned down (Chart 1), signaling a slowdown to come. Floor space completed and sold areslowing, which means that inventory is beginning to rise and activity to slow. Lastly, well likely geta monetary contraction where the growth rate in total social financing will slow (Chart 2). Theauthorities are scrutinizing corporate bond issuances and limiting certain wealth managementproducts.

Possible stimulus? The recent slowdown in activity has come with lower inflation (CPI in May was2.1% yoy, 2.4% in April) and that has started speculation on possible policy easing. We haveremoved the interest rate hike in Q4 but we think it is too early for a stimulus. Property pricescontinue to rise almost 1% every month (Chart 3) despite measures introduced in March andmakes it difficult to ease in this sector. With inventory rising, well likely see slower rise in propertyprices but it is too early to step on the gas after introducing tightening measures just 3 months ago.

For infrastructure, rapid stimulus projects are less likely. Projects typically need funding input fromlocal governments. Lending standards are tightening and the central government is pushing formore transparency in local government borrowings. The central government will be reopening thesame structural issue they were beginning to address if they restart rapid infrastructure projects.Finally, we think exports will slow from accounting adjustments but we dont see a collapse thatcan drag the economy significantly lower that will require a stimulus. Korea provides a moreaccurate and up to date exports and this has started to stabilize (Chart 4). Our US economist alsoexpects US growth at 2% for this year and accelerate to 3% in 2014 (see Nordic Outlook May 2013)and will provide stable external demand. If we do get a stimulus, well likely need a very low 2QGDP release in mid July and will only start impacting the economy in Q4 at the earliest and moreinto 2014.

Chart 1: China construction has turned lower Chart 2: Credit growth will likely slow

-20

-10

0

10

20

30

40

50

07 08 09 10 11 12 13

SEB China construction indicator% yoy 3mma

10

15

20

25

30

35

40

05 06 07 08 09 10 11 12 13

Bank Loans Total social financing estimate% yoy

Source: Bloomberg CEIC, SEB

You can also find our research materials at our website: www.mb.seb.se. This report is produced by Skandinaviska Enskilda Banken AB (publ) for institutional investors only. Information and opinions contained within this document are

given in good faith and are based on sources believed to be reliable, we do not represent that they are accurate or complete. No liability is accepted for any director consequential loss resulting from reliance on this document. Changesmay be made to opinions or information contained herein without notice.

http://sailesh.kumar.jha@seb.se/http://sailesh.kumar.jha@seb.se/

7/28/2019 SEB cuts China 2013 and 2014 growth forecast

2/3

- 2 -

Asia Strategy Comment

Chart 3: Property prices keep rising Chart 4: Exports will slow but not likely to contract in 2H

Average house price MoM %

-0.8

-0.6

-0.4

-0.20.0

0.2

0.4

0.6

0.8

1.0

1.2

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

Apr-13

May-13 -30

-25-20-15-10

-505

101520253035404550

00 01 02 03 04 05 06 07 0 8 09 10 11 12 13

Korea Exports YoY % 3mma

Source: Bloomberg CEIC, soufun.com, SEB

Table 1: New China Forecasts

New Old New Old

GDP (%) 7.5 7.9 7.5 7.7

CPI (%) 2.8 3.3 3.0 3.5

Lending rate (%) 6.00 6.25 6.00 6.75

Deposit rate (%) 3.00 3.25 3.25 3.75

USD/CNY 6.10 6.10 6.00 6.00

20142013

Source: SEB

7/28/2019 SEB cuts China 2013 and 2014 growth forecast

3/3

Asia Strategy Comment

DISCLAIMER

This communication is issued by a member of the Trading & Capital Markets department of Skandinaviska Enskilda Banken AB(publ), Singapore Branch (SEB). The information in this communication (the Communication) does not constituteindependent, objective investment research, and is not therefore protected by the arrangements which SEB has put in placedesigned to prevent conflicts of interest from affecting the independence of its investment research . Unless otherwiseindicated, any reference to a research report or research recommendation is not intended to represent that

report/recommendation and is not in itself considered a recommendation or research report.

This Communication is exclusively intended for institutional investors only (CLIENT) and may not be distributed to any otherparties without the prior written consent of SEB.

This Communication is intended for informational purposes only. Nothing in this Communication shall constitute an offer or asolicitation of an offer to enter into any transaction, nor shall it form the basis of or be relied upon in connection with any contract orcommitment whatsoever.

Although SEB has used all reasonable endeavours to ensure that the information presented in this Communication is correct, norepresentation or warranty is made as to its accuracy, adequacy, completeness, fairness or timeliness of the contents. To the extentpermitted by law, SEB accepts no liability whatsoever for any direct or consequential loss arising from use of this document or itscontents.

The information contained herein is subject to change without notice and may differ from the views, opinions and estimates held orexpressed by other SEB personnel. Any forward-looking statements, opinions, and expectations are subject to risk, uncertainties andother factors that may cause actual results to differ materially from those set forth in any forward-looking statements herein. Pastperformance is no guarantee of future results. SEB does not express any opinion on legal, tax, accounting or similar consequences ofthe transactions contemplated by this Communication. CLIENT is strongly advised to inform themselves about, and retain separateexpertise in respect of, such consequences.

SEB, its affiliates or employees may, to the extent permitted by law, have positions in, buy/sell in any capacity, or otherwiseparticipate in, any financial instrument referred to herein or related securities/futures/options or may from time to time perform orseek to perform investment banking or other services to the companies mentioned herein.

SEB makes no warranty that the Communication will not be distorted as a result of technical or other malfunctions, including but notlimited to incorrect transfer, technical inadequacies, disconnection, access, tampering and/or alteration by an unauthorised thirdparty.

The distribution of this document may be restricted in certain jurisdictions by law, and persons into whose possession thisdocuments comes should inform themselves about, and observe, any such restrictions. Skandinaviska Enskilda Banken AB (publ) isincorporated in Sweden as a Limited Liability Company. It is regulated by Finansinspektionen, and by the local financial regulators ineach of the jurisdictions in which it has branches or subsidiaries.