China data deluge: credit, cars, exports and steel

The first tranche of Chinese data for September has shown some diverging trends, with overall credit weak and exports soft, while steel and auto production is booming.  Of these data the credit stats are probably the most important and this too has shown some diverging trends in the underlying components.

The timing of the mid-Autumn festival this year relative to last may have played a role in some of the weakness in total social finance this month.  That said, this has been weak for quite a few months now after the explosion at the start of the year.

There appears to be a shift in the drivers of credit growth coming into year end.  Bank lending was slow in the last quarter of 2012 and at the start of 2013.  But it now appears to be lifting.

Stronger bank lending in the 2nd half will perhaps be necessary to offset the likely slowdown in other forms of lending.  Loans tied to trust products, for example, have started to slow after the incredibly strong start to the year.  With policymakers actively trying to restrain this form of lending, it seems likely to be slower in 4Q13.

Net corporate bond issuance has also fallen sharply and appears to be the biggest causality of policymakers changed attitude towards the magnitude of the financial risks.

Bank lending is the largest part of total financing flows and is more accessible to more types of borrowers.  So even though the headline is slowing, the composition of where the loans are coming from may have implications for real activity.

The small fall in exports in September was a big surprise for the market, although many should know better given the volatility in the data and the likely impact of the timing of the mid-Autumn festival.

For many this raises the concern that the rest of the world is perhaps not as strong as hoped.  But we have much better indictors of that in things like the OECD leading indicators.  As the chart left shows, this leads Chinese exports by 3-6 months.

There is a risk that RMB appreciation has impacted Chinese competitiveness.  But for me, that is only likely to limit the likely rise in exports in the coming months rather than ensure that they keep falling.

Complicating the comparisons for early next year is the the huge growth in early 2012 that was linked to false exports to gain access to funding.  So it seems likely that this indicator will become even less reliable.

More note worthy than the big increase in raw material imports is the continued strength in steel production, which according to CISA rounded out the month with close to a 15%YoY gain.

Perhaps the biggest risk to steel in Q4 is that government will clamp down producers given their concerns about over-capacity in the sector.  But this may just lead to underreporting of production rather than real declines if demand remains strong.

One area of domestic demand that has shown incredible strength in September is auto sales, which surged over 20%YoY.  The base effect may  have played a small role here, but it would suggest that consumer activity roared back to life following the usual summer slowdown.

So the first round of data looks ok overall, with slower credit growth perhaps not disastrous for real activity, with some areas showing explosive growth in the month.