February 01,2011

Chinese New Year Effect on Jan/Feb Macro Data

By Lu Ting,Hong Kong

In this note, we briefly discuss our forecasts of January macro data, which are hard to interpret due to the different timing of the Chinese New Year holiday. This year is no exception, though CNY in both this year and last year fall in the same month (14 Feb last year and 3 Feb this year). YoY CPI inflation in Jan may be distorted upwards as food prices usually rise prior to the CNY; YoY trade in Jan growth could also be partially lifted as traders would frontload their shipment before workers head home. While we suggest not over-interpreting January and February data, a higher CPI inflation reading in Jan may add more pressures to policymakers and the chance of a near-term interest rate hike rises on the margin.

Both CPI and PPI inflation are to jump

CPI inflation in January could jump to 5.4% YoY from 4.6% in December, driven by higher food prices, which may rise about 3.3% MoM, as a result of icy weather in southern China and the CNY effect. Food prices usually rise two weeks prior to the CNY on higher holiday demand. PPI inflation could also rise to 6.5% YoY in January from 5.9% in December, on higher commodity prices. Moreover, the 4.2-4.5% fuel price hike in late December could add about 0.1ppt to PPI sequentially. 

New loans and money growth broadly in line with targets

The PBoC has officially set the M2 growth at 16%, implying new loans would be around RMB7.2tn. Furthermore, it appears that quarterly distribution of new loans may be at 30%:30%:30%:10%; and the quota for the first month of each quarter is 40% of the quarterly quota, meaning the quota for January is 12% of the annual quota, around RMB900bn. In addition, it's reported that banks may have lent RMB1.2tn by 24 Jan. Banks may be forced to downsize their loan books in the last few days (a déjà vu of last year) as regulators are very serious in bringing annual loan growth under control and preventing frontloading. Putting all this information together, we expect new loans at around RMB1.0tn and loan growth at 18.3% in January, down from 19.9% in December 2010.

PMI to moderate modestly

We expect PMI to modestly decline to 53.3 in January from 53.9 in December. Economic activities should stay relatively stable, but sentiment on the economy could be affected by tighter control of loan growth.

Trade data are too volatile to read

Monthly trade data are very volatile, and year-on-year comparisons of trade data in January and February are almost meaningless. A more realistic approach is to calculate YoY changes for the combined period of Jan & Feb. We forecast export and import growth at 23.1% and 27.4% YoY respectively in Jan & Feb, from 17.9% and 25.6% respectively in December. In coming months, export growth could slow to about 15-20% while import growth may stay robust at around 20-25% on the resilience of the Chines

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