Driving the Day
1.Data dump – credit
The PBoC decided to ruin our Friday afternoon by releasing monthly credit data for March.
- Total outstanding credit growth accelerated to 10.7% y/y – up from 10.1% growth in February and the highest print since August.
- RMB bank loans accelerated to grow at 13.8% y/y – up from 13.3% in February and marking the fastestpace of growth since June 2016.
In terms of shadow financing, trust loans and bankers acceptance saw strong monthly flow, although both continue to contract on a y/y basis.
- Trust loans contracted by 7.9% y/y – but that was a big improvement from February’s 8.9% contraction.
- Bankersacceptance contracted by 12.1% y/y – a huge improvement from the 15.7% contraction in February.
This was a big credit print.
- Total credit came in at RMB 2.86 trillion for the month – crushing expectations of RMB 1.85 trillion.
Our take: Markets will love this data, and overlook the weak import print (see next entry).
Get smart: The credit cycle has officially bottomed out.
Get smarter: That should lead economic growth to bottom out about six to nine months from now.
The bottom line: While this print is great for the cyclical growth outlook, we still don’t expect the economy to stabilize until late in the year.We don’t see it happening right now.
Reuters:China March new loans rebound sharply, more policy easing expected
2.Data dump – trade
The customs bureau released monthly trade stats for March on Friday afternoon.
First, the good news:
- Exports grew by 14.2% y/y – up from a 20.7% y/y contraction in February and beating expectations of 7.3% growth.
Now, the bad news:
- Imports contractedby 7.6% y/y – down from a 5.2% contraction in February and well below expectations of a 1.3% contraction.
Quick take 1:The good news isn’t that good. A march bounceback in exports was inevitable, but overall global trade growth is under pressure – and external demand will be a drag on growth for the remainder of 2019.
Quick take 2: The bad news is really bad. A deterioration in imports underscores how weakdomestic demand is at the moment. This just reinforces our view that China’s economy has yet to bottom out.
One caveat: The monthly trade data is very volatile, so no one should take this one print as a definitive sign of economic momentum.
Get smart: We continue to think that the “China is stabilizing narrative” is overdone.
PS: Our head of economic research, Andrew Polk, was on Bloomberg this morning to discuss our outlook forthe economy. Take a gander at thelink below.
3.Volkswagen rumors swirling
There is growing speculation that Volkswagen may be the next foreign auto manufacturer to boost investment and ownership in its local JV.
Some context: Last year, BMW announced that it will become the first foreign company with majority ownership in an auto JV – upping its stake in its tie-up with Brilliance Auto to 75%.
But Volkswagen is staying mum:
- “German automaker Volkswagen AG and its local joint-venture partner JAC Motors have declined to confirm a report that the former intends to purchase a ‘big stake’ in the latter.”
- “Reuters reported on Wednesday that Volkswagen has tapped investment bank Goldman Sachs as an adviser on a purchase plan.”
This is coy:
- “In a statement , Shanghai-listed Anhui Jianghuai Automobile Group said the company is looking for deeper cooperation with Volkswagen after the pair set up an electric-vehicle joint venture in 2017.”
- “The statement said they had not finalized a plan.”
What to watch: Whether the Volkswagen deal goes through soon or not, there will almost certainly be a handful of foreign auto brands that take controlling stakes in their China ventures. That should shake up the market.
4.China agrees to trade enforcement mechanism with US
We’ve got a deal, folks!
Well, kind of.
On Wednesday, US Treasury Secretary Steve Mnuchin said that China and the US have solved one of the biggest stumbling blocks in the negotiations to end the trade war (CNBC):
- “We’ve pretty much agreed on an enforcement mechanism.”
- “We’ve agreed that both sides will establish enforcement offices that will deal with the ongoing matters.”
- “This is something both sides are taking very seriously.”
This comes after Mnuchin spoke to Vice Premier Liu He on Wednesday morning, Beijing time. The two were scheduled to speak again on Thursday, though there has been no reporting, so far, as to whether that call took place.
Mnuchin refused to say when a final deal might be reached:
- “We are hopeful we can do this quickly, but we are not going to set an arbitrary deadline.”
And what has China been saying? Nothing. They have not announced the talks between Liu and Mnuchin, and foreign ministry spokesperson Lu Kang on Thursday had this not-so-helpful comment (MoFA):
- “We noted that there have been some remarks from the US side from time to time, and I would like to refer you to the competent authority.”
Get smart: This is a positive development, but it’s far from definitive.
CNBC: Treasury Secretary Mnuchin says US and China have agreed on the trade deal enforcement mechanism
MoFA: Foreign Ministry Spokesperson Lu Kang’s Regular Press Conference on April 11, 2019
WSJ: U.S., China Reach Accord on Trade-Deal Enforcement, Mnuchin Says
5.Party tries to get its house in order
You know who likes rules? Xi Jinping. He’s kind of obsessed withcreatinga rules-based Party system.
It’s somewhat ironic, then, that one of Xi’s biggest problems is too many rules. The Party didn’t even know how many rules it had in 2012. Right before taking power, Xi ordered the first-ever study – and streamlining – of conflicting CCP rules.
Historically, the Party has pumped out the rules. Between 1949 and 2012, the Party published over 23,000 “normative documents,” of which 1,178 directly regulate the operations of the Party apparatus and the specific activities of Party members.
More context: Of those 1,178 regs, the initial cleanup – which took place from 2012 to 2014 – abolished 322, annulled 369, and amended 42.
Xi is now pushing through a second round:
- “The Communist Party of China (CPC) Central Committee has decided to abolish 54 central Party regulations and normative documents.”
- “Another 56 will be annulled, with eight amended.”
Our take: This was long overdue. The secret to a well-functioning organization is a clear set of rules – something the Party has lacked for a long time.
Xinhua: CPC decides to abolish 54 central Party regulations, normative documents
6.Greece set to join China-led group
Li Keqiang wraps up his European tour today. He is in Dubrovnik, Croatia, for the annual China and Central and Eastern European Countries leaders’ meeting.
Some context: The group, which was founded in 2012, includes China and 16 other countries from central and eastern Europe. It’s colloquially known as the “16+1.”
The big news: It might soon be the 17+1 (FT):
- “Alexis Tsipras, Greece’s prime minister, this month informed the members of the “16+1” group of China and central and eastern European states — 11 of them EU members — of his country’s willingness to join them, according to a letter seen by the Financial Times.”
That will definitely make China happy.
Brussels, on the other hand, will not be pleased:
- “Some diplomats in Brussels and large EU member states, including Germany and France, worry that Beijing might seek to use the 16+1 forum as a vehicle to exert greater influence within the bloc.”
Get smart: For all the EU’s fears, our understanding is that many of the countries in the 16+1 have been underwhelmed by China’s commitment, and disappointed by the 16+1 group.
Financial Times: Greece eyes 16+1 group of China and eastern European states
7.China is livestreaming matchmaking
Get this: China’s largest date-to-marry matchmaking apps are trying to leverage live-streaming to help users find love.
That’s right – these apps are introducing interested couples to each other through video chats, and letting other users watch the magic.
Back in January, industry powerhouse Shijijiayuan 世纪佳园 launched a streaming video feature meant to facilitate live conversation between multiple participants, a sort of talk show where app users are both the hosts and the audience.
Confused? We’re not surprised. There’s nothing like it in the Western app space.
Click on the link below to read our breakdown of the feature – and to understand the broader implications for anyone trying to sell a product or service in China via mobile app.
Spoiler alert (Trivium UB):
- “A key issue for foreign app developers: Culturally, they don’t know what they don’t know.”
- “Most non-local firms don’t have a deep enough understanding of the social landscape to respond to user needs, much less to churn out innovative features.”
China’s dating apps are experimenting with live-streamed matchmaking