The risks of a hard/soft landing in China have subsided as the strong economic data releases of January continue to support the country’s improving economic outlook. Exports, measured in US dollars jumped 16.7% yoy, from 3.1% in December and beat market calls for 10%, meanwhile imports remained robust at 7.9%, beating the market consensus once again. Inflation figures also surprised on the upside; PPI surged 6.9% to the highest level since March 2011 while CPI rose 2.5%, from 2.1% in December. ‘Seasonal factors’ could have contributed to the encouraging trade data; boosted by the timing of the week-long Lunar New Year beginning in January.
The 10% upsurge in PPI over the past 10 months could be due to a number of positive factors including: a rebound in the commodity space (with the likes of iron ore soaring to all time highs and oil bouncing off lows), policymakers’ efforts to stem industrial overcapacity, real estate and infrastructure investment and credit stimulus. We are not concerned that PPI is expected to rise further this quarter, and doubt that the PBoC’s tighter monetary policy objectives will be hampered; as their efforts to crack down on financial risks within the economy continue.
Sentiment has also been boosted by Trump agreeing to honour China’s ‘one-China policy’ in his first engagement with Chinese president, Xi Jinping. Seen as a cornerstone to Sino-US relations which dates back to the 1970s, the one-China policy views China and Taiwan as run under one government.
Ahead of his inauguration President Trump sparked all number of trade-war concerns when he called into question the relevance of the one-China policy, and called Taiwanese President Tsai Ing-wen; something no sitting president has done since President Jimmy Carter broke off relations back in 1979. Unfortunately this shows the sheer unpredictability of the new US president and by no means puts the idea of a trade dispute between the US and its largest trading partner at bay; however, better cooperation between the two nations has abated concerns somewhat which has seen the renminbi recover against the dollar from month highs.