2 Global Sourcing Fung Business IntelligenceHelen Chin, Timothy Cheung T: (852) 2300 2471 helenchin@fung1937 timothycheung@fung1937 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong fbicgroup/ T: (852) 2300 2470 F: (852) 2635 1598 E: fbicgroup@fung1937 ISSUE 50 MAY2018 C hi naT ra deQ ua rte rly 3 Domestic Trade Retail sales of consumer goods reached 9,027.5 billionyuan in 1Q18, up by 9.8% yoy. Online retail sales of goods,which accounted for 16.1% of total retail sales, increasedmarkedly by 34.4% yoy over the period. Ex-factory prices of industrial products have trendeddownward in recent months. The producer price indexof industrial products fell by 0.1%, 0.2% and 0.2% inFebruary, March and April respectively. Consumption expenditure of rural households posteddouble-digit growth in 1Q18. The per capita consumptionexpenditure of rural households grew nominally by 11.0%yoy to 3,241 yuan in the quarter. Meanwhile, the per capitaconsumption expenditure of urban households increasedby 5.7% yoy in nominal terms to reach 6,749 yuan in 1Q18. Growth in nominal fxed asset investment accelerated to7.5% yoy in 1Q18 from 7.2% yoy in 2017, attributable tothe FAI growth acceleration in the primary industry andreal estate development. China is likely to boost domestic demand amidstintensifying China-US trade tensions. According to themedia report on the Communist Party’s Politburo meetingon 23 April, China would ‘combine the acceleration ofstructural adjustment with the continuous expansion ofdomestic demand’. This is the frst time since December2014 that the idea of boosting domestic demand wasmentioned in a report on a Politburo meeting, and webelieve it signals that the Chinese leaders have recentlyattached higher importance to domestic demand. Entrepreneur Confdence Index rose strongly to 132.9in 1Q18 from 126.0 in 4Q17, indicating that confdenceamong Chinese entrepreneurs has greatly improved lately. Manufacturing sector has expanded at a relatively stablepace recently. PMI rose from 50.3 in February to 51.5 inMarch, before dropping slightly to 51.4 in April. April NMI indicates gradual acceleration in growth of non- manufacturing sector. NMI rose slightly to 54.8 in Aprilfrom 54.6 in March.Foreign Trade Both exports and imports recorded double-digit growthin April. Exports gained 12.9% yoy, while imports rosemarkedly by 21.5% yoy in April. Growth of exports to the US accelerated in 1Q18 amidintensifying China-US trade tensions: Growth of exports tothe US was 14.8% yoy in 1Q18, up from 11.5% yoy in 2017.Several western provinces in China witnessed robust year- on-year growth in exports in 1Q18. Exports from Guizhou,Gansu and Shaanxi soared by 60.4% yoy, 60.4% yoy and57.8% yoy respectively over the period. FDI increased slightly by 0.5% yoy to 227.5 billion yuan in1Q18. FDI in the Hi-Tech industries grew rapidly by 12.8%yoy to 43.9 billion yuan, accounting for 19.3% of the totalFDI in the quarter. Foreign exchange reserves have trended downward sinceFebruary, falling to US$ 3,124.9 billion as at the end ofApril, the lowest level since December last year. Chinese yuan has depreciated against the US dollarsince mid-April. After fuctuating within a narrow rangethroughout early February to mid-April, the daily fxing rateof the Chinese yuan against the US dollar depreciated to6.3852 on 21 May, the weakest level since late January. On 19 May, China and the US issued a joint statement oneconomic and trade consultations, after a two-day meetingbetween the Chinese and the US delegations in Washington.According to the statement, China will signifcantly increaseits purchases of the US goods and services, in particularagricultural and energy products; China will amend its lawsand regulations in areas of intellectual property protections,including the Patent Law. Most importantly, both sidesagreed to put the trade war and the imposition of tariffs ‘onhold’, according to the remarks made by the US TreasurySecretary Steven Mnuchin on the day after the release ofthe joint statement. On 22 May, the Chinese government announced the detailsfor the reduction of import tariffs on automobiles:Theimport tariff rates for automobiles would be cut to 15% from25% and 20%, while the import tariff rates for automobileparts would be adjusted downward to 6% from 8%, 10%,15%, 20% and 25%, effective from 1 July. 4 1. China’s real GDP maintains stronggrowth in 1Q18 ARecent developments Looking ahead, the Chinese policy makers will striveto maintain stable growth of the Chinese economy innear future. We predict that China’s monetary policywill stay neutral, and loans and ‘total social fnancing’will continue to grow at a reasonable pace this year.Moreover, the central government will continue withits active fscal policy. According to the GovernmentWork Report published in March, the governmentwill launch a series of measures to reduce taxesand fees by 800 billion yuan and 300 billion yuanrespectively this year. Given these policy directionsand the continuous recovery of the global economy,we remain optimistic about China’s economic outlookin the near term. We predict that the real GDP growthwill stay stable at 6.8% in 2Q18. Downside risks tothe economic growth, in our view, come mainly fromthe escalating trade tensions between China andthe US, the negative impact of the ongoing propertytightening measures and the strengthened regulationof the fnancial sector. China’s real GDP growth came in at 6.8% year-on- year (yoy) in 1Q18, staying at the same level for threeconsecutive quarters (see exhibit 1). The latest fgureconfrms the robust growth momentum of the Chineseeconomy. Overall, in 1Q18, China’s nominal GDPamounted to 19.9 trillion yuanpared to 2017, the growth of the tertiary industrydecelerated while that of the secondary industryaccelerated in 1Q18. The real growth rate for thevalue-added of the tertiary industry came in at 7.5%yoy in 1Q18, lower than 8.0% yoy in 2017. In themeantime, the real growth rate for the value-addedof the secondary industry was 6.3% yoy in 1Q18,compared to 6.1% yoy in 2017. In 1Q18, fnal consumption expenditure contributed5.3 ppts to the real GDP growth, while gross capitalformation contributed 2.1 ppts. These fgures showthat China has been shifting towards a consumption- led economy. FY176.9% 2Q176.9%3Q176.8%4Q176.8%1Q186.8%China’s real GDP growth, 2Q17 to 1Q18 Source: National Bureau of Statistics, PRC yoy growth (%) Exhibit 1 。。。。。。