The latest set of economic data indicates that China’s economic recovery continues. Industrial production growth improved slightly, while investment in manufacturing accelerated due to strong export growth. Retail sales growth accelerated, which indicates a recovery in domestic circulation.
USD/CNH is recovering gently as the trading range expands from 6.4960. Downward momentum is shrinking. But the outlook remains bearish as long as the resistance at 6.5968 remains. The downtrend from the mid-term top at 7.1953 should continue to a 61.8% retracement from 6.0153 to 7.1953 at 6.4661. Here we expect strong support, leading to a steady corrective bounce.
China’s industrial production rose 7.0% y/y in November, compared with 6.9% y/y in October, in line with expectations. Retail sales rose 5.0% YoY versus 4.3% YoY in October but fell short of expectations 5.1% YoY Automotive sales rose 11.8% YoY, while sales of household appliances – by 5.1% YoY Sales of communication equipment jumped even by 43.6% YoY. Investments in fixed assets grew by 2.6% YoY compared to 1.8% in October YoY, exceeding expectations of 2.6%.
Private sector investment in fixed assets has grown by 0.2% since the beginning of the year, and since October – by 0.7%.
The ongoing economic recovery suggests that the PBoC will keep its monetary policy unchanged in the coming year. About the discount rate, since April, the central bank has kept the basic rate on loans unchanged at 3.85%. Meanwhile, it has not adjusted the required reserve ratio (RRR) since May. Currently, the RRR for large banks, small and medium-sized banks, and rural credit companies remain at 12.5%, 9.5%, and 6%, respectively.
In response to news that China has blocked imports of Australian coal, Commerce Minister Simon Birmingham said he did not rule out China’s entry into the WTO. However, he stressed, “we need to make sure we have the facts when it comes to solving WTO problems.”
“When it comes to coal exports, it is important to recognize that while China is a significant market, it is not our largest market,” he added. “We do have significant markets in Japan … with India, and there has been significant growth lately over Vietnam.”
“We continue to operate in several other markets where our government has entered into trade agreements to develop trade links to ensure that all of these exporters have as many options as possible.”
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