1.Data dump – inflation
Thestats bureau released inflation data for March on Thursday morning.
- Consumer prices grew by 2.3% y/y – up from 1.5% in February and the fastest print in five months.
- Producer prices grew by 0.4% y/y – up from 0.1% in February, and the first acceleration in nine months.
Quick take 1: Consumer prices were up thanks primarily to a jump in pork prices, which increased for the first time in 26 months, as the spread of African swine fever starts to dent supplies (see August 24 Tip Sheet).
Quick take 2: The increase in PPI was primarily thanks to oil prices. The oil and natural gas sub-component of the producer price index rose 9.7% y/y in March, by far the biggest increase of any sub-component.
Get smart: The rise in CPI is not yet big enough to concern the central bank, so overall consumer prices remain a non-issue from a policy standpoint.
Get smarter: Strip out the high price of oil, and it looks like Chinese producers are still largely facing deflationary pressure for upstream industrial goods. So we are not convinced that the improved PPI is a sign of a stabilizing industrial economy.
2.Data dump – what to watch
The monthly data dump for China will continue tomorrow, with trade data set to be released on Friday morning.
Expectations are for a solid rebound in exports, and a milder contraction in imports when compared to February numbers (Reuters):
- “Exports in March are expected to have risen 7.3 percent from a year earlier, according to the median estimate of 32 economists in a Reuters poll, following a 20.8 percent drop in February.”
- “China’s Commerce Ministry said recently that both exports and imports had rebounded in the first half of March.”
- “China’s imports in March are expected to have fallen 1.3 percent from a year earlier, though the drop was seen narrowing from the previous month’s 5.2 percent decline.”
There’s a lot riding on this months’ data release:
- “If Friday’s data are in line with forecasts or better, it could add to early signs of stabilization in the world’s largest trading nation as worries grow over slowing global growth.”
Regular readers will know that we don’t buy the “China is stabilizing” narrative just yet, which is why we’ll be closely parsing the data over the coming days – as will many others.
What to watch: The more important numbers for determining the state of Chinese growth will be the domestic production and investment data, alongside the March credit numbers – which will all be released in the coming six days.
Reuters: China’s March exports seen rebounding, imports falling again: Reuters poll
3.Film industry struggles
One area of the economy that continues to struggle is the film business.
Three of the biggest companies in the industry are forecasting very poor Q1 results (Caixin):
- “Three major filmentertainment firms forecast big profit declines in the first quarter, with two saying they fell into the red, as the industry suffers under the weight of a broader slowdown after years of breakneck growth.”
The forecasts dented equity prices for the industry mid-week:
- “The downbeat forecasts sparked a Wednesday selloff for the sector, following the release of forecasts by Beijing Enlight Media Co. Ltd., Huayi Brothers Media Corp., and Zhejiang Talent Television and Film Co. Ltd. after markets closed the previous day.”
- “All three firms were down by at least 4% during the trading day, with Enlight, Huayi and Zhejiang Talent ending down 3.7%, 4.1% and 0.12%, respectively.”
Get smart: This performance has less to do with the overall economy than it does with a right-sizing of growth in the film industry itself.
So it’s not wise to extrapolate these numbers out to consumer sentiment or spending more broadly – to understand those dynamics we’ll just have to wait a few more days for the hard data to come in.
Caixin: Entertainment Slowdown Hits Filmmakers’ Bottom Lines
4.Xi courts Myanmar general
On Wednesday, Xi Jinping met with Myanmar’s defense chief Min Aung Hlaing.
Some context: Min Aung Hlaing’s visit is ostensibly about preparing for the Belt and Road summit to be held in Beijing later this month.
Xi was full of kind words:
- “China attaches great importance to China-Myanmar relations, Xi said, noting that no matter how the international situation changes, China is willing [to]… constantly enrich the China-Myanmar comprehensive strategic cooperative partnership.”
Xi wants more military cooperation:
- “’The armed forces of the two countries should deepen practical exchanges and cooperation,’…Xi said.”
Min Aung Hlaing explained his rationale for the visit (Myanmar Times):
- “’The goodwill trip is aimed at strengthening friendship between the two countries and their armies,’ the Commander-in-Chief said during a meeting with Myanmar Embassy staff in Beijing.”
- “He said the country’s strategic location in geopolitics compels it to have good relations with every country.”
The bigger picture: Myanmar is a key Belt and Road country, but its leadership is also wary of fast-growing Chinese influence.
Get this: Myanmar has been using US government officials to help it negotiate better terms on deals with China (WSJ). That is not going to make China happy.
Xinhua: Xi meets with Myanmar’s commander-in-chief of defense services
Myanmar Times: Commander-in-Chief arrives in China on goodwill visit
WSJ: U.S. Goes on the Offensive Against China’s Empire-Building Funding Plan
5.Government employs “divide and conquer” approach to business supervision
The build out of China’s social credit system is garnering a lot of attention from abroad.
In reality, though, there is no one single system. Instead, the government is seeking to integratea raft of different systems.
For instance, city governments have pilots to track individuals (see November 20 Tip Sheet). Meanwhile, the central government is building a system focused on companies.
On Tuesday, an official at the National Development and Reform Commission (NDRC) said that the government will accelerate efforts to build the company-focused credit system as part of the pushto improve the business environment.
Companies with better credit scores will get better treatment.
- “The average inspection rate of D-class [the lowest grade] import and export enterprises reached 92.52%, which is nearly 180 times that of A-class import and export enterprises.”
There could be more material benefits as well:
- “[The government will] prioritize fiscal funds for companies with higher credit ratings.”
This is a mammoth task: The government has already compiled scores for over 400,000 companies.
Get smart: Most foreign analysis of the social credit system has focused on what it means for individuals. But the corporate side of the system will be much more important for business operations, and foreign companies needtoinvest in understanding it, right now.
Related: Check out this piece at our sister site, Trivium User Behavior, for more on social credit systems: Chinese users overwhelmingly approve of social credit systems