汇丰-2011年中国宏观经济研究.ppt

,MacroChina EconomicsChina Inside OutDrought,wages,oil and inflationDONT PANIC28 February 2011Qu HongbinChief Economist,Greater ChinaThe Hongkong and Shanghai Banking Corporation Limited,abcGlobal Research Drought,wages and oil all add up toinflationary pressure but theres noneed to panic record grain reserves,50m new ruralworkers and deep fiscal pockets cancushion the supply shockThe drought and oil price surge couldnt have come at aworse time as inflation was already rising rapidly in China.Drought is affecting 26%of the countrys winter wheat cropareas,threatening wheat production for one of the worldstop food consumers.That said,the severity of the drought ismuch less than the one in 2000,which caused a 12.5%decline in whole-year wheat output.Even if wheat outputdrops meaningfully this year,the record high reserves of200m tons(nearly 40%of annual consumption)should helpcushion the supply shock and avert food price spikes.We think concerns on wage inflation are overplayed as theacceleration in wage growth is mainly cyclical rather thanstructural.Despite the hike in minimum wages,a policy-ledslowdown in economic growth should stop wages fromrising too fast in coming quarters.With the urbanisation ratiostanding at just 47%,China has far from exhausted its poolof surplus rural labour.The inflow of an anticipated 50mnew rural workers means urban wages should only grow inline with productivity growth in the next five years.The recent surge in oil prices will certainly complicateChinas fight against inflation,given its 56%import,+852 2822 2025Sun JunweiEconomist,.hk,dependence ratio.An outright pass-through of the oil pricesurge(using the average WTI futures price for the rest of2011 as a benchmark)would add about 0.5 percentage pointsto CPI.Yet Beijing is likely to use fiscal subsidies tomitigate the impact,especially for farming and publictransport.The impact on growth is even smaller given thatChinas economic growth is still mainly powered by coal,View HSBC Global Research at:http:/,(over 70%),not oil.Our projections of 3.9%whole-year CPI,Issuer of report:,The Hongkong and Shanghai Banking,and nearly 9%GDP growth for 2011 remain intact.,Corporation LimitedDisclaimer&DisclosuresThis report must be read with thedisclosures and the analyst certificationsin the Disclosure appendix,and with theDisclaimer,which forms part of it,3.6,MacroChina Economics28 February 2011Drought,wages,oil andinflation Drought threats wheat crop but record-high state reserves of grainand fiscal subsidies can cushion supply shock Wage inflation is overplayed because wage growth will be cappedby policy tightening this year and over 50m rural-urban labourmigration in next five years Even if the oil price surge lasts(average WTI futures for 2011indicate USD110/bbl),it would add just 0.5ppt to headline CPI,abc,Chinas headline CPI surprised the market to the,Chart 1.Reweighting has marginal impact on headline CPI,downside,at 4.9%y-o-y in January comparedwith market expectations of 5.4%.The re-weighting of Chinas CPI basket(see table 1),which is subject to one large adjustment everyfive years and smaller tweaks every year,is thenot the main factor as the difference between the,5.554.543.532.521.5,(%yr)2.71.62.7,2.42.4,3.3 3.52.9 3.1 3.03.5 3.62.8 3.1 2.9 3.3,4.34.4,5.1 4.9424.55.1 4.9184.6,CPI figures before and after the re-weighting is,10.5,1.5,marginal(see chart 1).,Jan-10,Apr-10,Jul-10,Oct-10,Jan-11,Source:NBS,CEIC,2010 w eights,2011 w eights,Table 1.China CPI weighting(%),Based on the new set of weightings,Januarys,Old,New,Change(ppts),CPI rose by 4.942%y-o-y,versus 4.918%y-o-y,FoodTobacco and wineApparelHealth and medicalHousehold applianceand equipmentsEntertainment andeducationTransportation andcommunicationsHousingTotal,32.73.99.1106.314.210.513.3100,30.53.48.69.65.91410.517.5100,-2.2-0.51-0.49-0.36-0.36-0.25-0.054.220,based on the previous set of weightings.In month-on month terms,Januarys CPI was up 1.021%m-o-m according to the new weightings,versus1.070%based on the previous weightings.The key reason for this surprise is a slower thanexpected growth rate of food prices,which easedfrom an average of over 3%m-o-m before the,Source:CEIC,HSBC estimates2,Henan,Shandong,Hebei,Anhui,Jiangsu,Shaanxi,Gansu,Shanxi,others,0.0,MacroChina Economics28 February 2011Chart 2.2011 drought areasSource:National Climate Centre,HSBCChinese New Year to 2.8%in January.As a result,food prices only rose 10.8%y-o-y in January,similar to the average of the previous two months(10.7%),which is in sharp contrast to thenoticeable surge in food prices ahead of Chinese,Chart 3.2009 drought areasSource:National Climate Centre,HSBCBy 24 February,there were 5.8m hectares ofdrought-hit farm land,representing around 26%oftotal wheat-producing farm land.Chart 4.Wheat production as%of national total,abc,New Year in previous years.This occurred even,30.0,26.5,when weather conditions were worse thanprevious years,suggesting Beijings recent,25.020.0,17.8,18.6,cooling measures,such as fiscal subsidies forfarming,making vegetable transportation toll-freeand selling state reserves of grain and meat,have,15.010.05.0,10.7 10.2,8.7,3.3,2.3,1.8,been filtering through.Drought threatening wheat,harvestsThat said,a serious drought is threatening wheatcrops in northern China,causing new concerns onfood price inflation.The UNs Food andAgriculture Organisation(FAO)recently issued aspecial alert that the severe winter drought in theNorth China plain may put wheat production atrisk,fuelling a rally in international wheat prices.Indeed,this year the drought-hit areas are themain wheat-producing provinces,includingShandong,Henan,Shanxi,Jiangsu,Anhui,Hebei,Shaanxi and Gansu,which account for nearly80%of wheat production(chart 2).,Source:CEIC,HSBCbut no need to panicHowever,there is no need to panic.First of all,thisyears drought is not the worst ever in China.Currently,5.8m hectares of farm land are affected,or 6%of total farm land,less than the historicalaverage of 12m hectares over the past few decadesand well below the 40m hectares hit in 2000.To put this in the context,lets compare this yearwith the two big previous droughts in 2009 and2000(see table 2).In 2009,severe drought hit 15provinces,primarily in north China,affecting18.4m hectares of farm land,including 11.7mhectares of crops.The drought in eight wheat-,3,MacroChina Economics28 February 2011producing provinces in 2009 was more serious,Chart 5.Chinas wheat production since 1949,abc,than this year 8.7m hectares were affected,2.6mhectares severely;the numbers so far for 2011 are5.8m and 1m hectares,respectively.Despite thesevere drought in 2009,China still managed toachieve a 2.5%increase in production.This years drought is much less severe than 2000,which was the worst since the establishment of,140120100806040200,(Mn tons),(%yr)40200-20-40,the PRC in 1949,affecting only around 25%of,1949 1956 1963 1970 1977 1984 1991 1998 2005,the size of the area hit in 2000 when wheat outputdropped 12.5%y-o-y.If history provides someguide,the drought this year could lead to around a,Wheat production(Lhs)Source:CEIC,HSBC,Grow th y-o-y(Rhs),3%loss in production.But given progress inproduction methods in the past decade and theState Councils decisive policy measures,theimpact on production may turn out to be a lot less.Second,there are ample wheat stocks thanks toseven consecutive years of good harvests,thelongest period of continuous good harvests in,The grain reserve represents around 40%of theannual consumption ratio,which provides a strongbuffer against any potential loss and should averta sharp surge in the wheat price.Beijing can sellstate reserves to ease supply shortages andstabilise wheat prices.Taking into accountliquidity and demand factors,we believe the y-o-yrise in wheat prices is likely to be around 10-15%.,China in more than six decades.The countryscurrent wheat reserve is at an eight-year high,according to the USDA.Table 2.The drought in 2011 is not as serious as those in 2009 and 2000,Drought areas,Wheat production(y-o-y),Wheat price(y-o-y),Liquidity M2 Wheat stock Macro outlookgrowth y-o-y at,beg.of year,2011,Mainly north China wheat-producing areas,Only modestreduction(up to 5%)and an increase in,Unlikely to see sharpsurge,relatively highgrowth 10-15%,17.2%Sufficient;the Strong growth momentumhighest level limits downside risk butin 8 yearspolicy-induced slowdown is,production cannot beruled out,expected;inflation pressurein the pipeline and the mainpolicy concern,2009,18.4m hectares of farm,2.5%,8%,18.8%High,Stimulus package started to,land incl.9m ha of crops,8.7m ha in eight wheat-producing provinces.2.638m ha experiencedsevere drought,kick in,leading to V-shapedrecovery and surge in creditand monetary growth,2000,The worst since the,-12.5%,Modest increase,14.3%Sufficient;,Starting to recover from,establishment of the PRC,higher than2011,aftermath of Asian financialcrisis when economy,dropped below 8%growthand saw deflation in 98-99Source:HSBC4,40,35,30,25,20,15,MacroChina Economics28 February 2011Chart 6.Wheat stocks the highest in eight years,drought persists and deteriorates.These measures,abc,100806040200,(Mn tons),(%),806040200,if properly implemented,should effectivelyminimize the loss in wheat production.Table 3.The State Councils 10 measures1 Expand the range of subsidies on watering;subsidies remainRMB10 per mu(a unit of area 1 mu=0.0667 hectares)2 Subsidies on fertilizer,wheat turning green and jointing,RMB10per mu,1997 1999 2001 2003 2005 2007 2009 2011Wheat stock at y ear beginning(Lhs)Stock/use(Rhs)Source:USDA,HSBC estimatesThird,Beijing is experienced at handling theimpact of bad weather conditions and its deeppockets have allowed it to increase subsidies forfarming this year.Drought hits different parts ofChina almost every year and both central andlocal government officials are required to beaccountable for grain production and supply.Right after the Chinese New Year holiday,theState Council announced 10 measures toencourage wheat production and stabilise foodprices(table 3).These measures not onlysubsidise wheat production in drought areas butalso pre-emptively subsidise corn and riceproduction by lifting purchasing prices andmaking special arrangements for rice and cornplanting.This should minimize the potential riskto production of other agriculture products if theChart 7.Wheat accounts for 22%of total grain production,3 Central government arranges RMB1.2bn in subsidies to fundpurchase of agricultural machinery,mainly pumps,irrigationfacilities and other water-saving equipment in drought-hitproduction areas4 Subsidies on implementation of pest control.In the mainproducing areas of the three main food crops(wheat,rice andcorn)-800 counties and the major source areas of migratory,epidemic diseases and insect pests 200 counties it will set up2,000 professional anti-worm service organizations,each of whichwill receive RMB25m from the central government5 Central government grants RMB5bn to build 200,000greenhouses for rice seedlings in Northeast provinces6 Subsidies on film-planted corn for 5,000 mu in Southwest andNorthwest provinces,RMB10 per mu7 Expand subsidies to county-level anti-drought service teams.Each of 800 counties affected by drought will receive a subsidy ofRMB2m for purchase of water transportation vehicles,mobileirrigation facilities8 Accelerate construction and upgrade of anti-droughtinfrastructure.The central government will grant RMB6.7bn9 Increase the minimum purchase price of rice by 10-22%10 Take nationwide action to steadily increase grain production.Higher awards to the grain-producing counties and villages thatrepair agricultural infrastructureSource:HSBCHistorically,wheat prices have remainedrelatively stable and we think the currentmeasures are likely to avert a sharp rise.AlthoughChina is the worlds largest consumer of wheat,the domestic price has been less volatile than ininternational markets.Domestic retail wheatprices rose 8.5%y-o-y last year,whileinternational prices shot up nearly 50%.Theample state wheat reserves will continue to play a,45,(%)1991 1993 1995 1997 1999 2001 2003 2005 2007 2009,role in stabilising wheat prices(chart 9).Meanwhile,global wheat supply and demand isroughly in balance and the current internationalwheat price is around 20%off the peak of aroundUSD10/bu,which offers relatively limited scopefor wheat prices to surge.Therefore,we assign alow probability of a big jump(say over 20%)inthe wheat price in China.,Rice,Wheat,Corn,Source:CEIC,HSBC5,02,03,10,30,20,10,0,MacroChina Economics28 February 2011Chart 8.Chinas wheat price is relatively less volatile,two decades,suggesting the latest acceleration in,abc,150100500-50-100,(%yr,3mma),(%yr,3mma),50403020100-10,wage growth is mainly cyclical rather than secular.Last year,China created 11.68m new jobs,lowering the official urban registeredunemployment rate from 4.3%in 2009 to 4.1%,close to the pre-crisis level(4%).Employmentindices in HSBC China Manufacturing and,04 05 06 07 08 09Chicago w heat price(Lhs)China rural market w ehat price(Rhs)Source:Bloomberg,CEIC,HSBC,Services PMI both show sustained expansion tomeet growing new business flows.The buoyantlabour market leads to substantial wage growth(the average nominal wage rose 14%as of,September 2010).Chart 9.High wheat stocks constrain price rise,403020100-10,(%yr),(%)?,0-10-20-30-40-50-60,It is also worth noting that recent acceleration inwage growth has been accompanied by a strongpick up in industrial output.More importantly,industrial output has been growing much fasterthan wages over the last 18 months(see chart 11).Even factoring in employment growth,growth intotal labour compensation of the Chinese,02,03 04,05,06,07 08,09,10 11f,manufacturing sector has stayed below the growth,China w heat price(Lhs)Stock/use(Rhs,inv erted)Source:USDA,CEIC,HSBC estimateWage-inflation spiral?The worries about a wage-inflation spiral areoverplayed,in our view.Wages are growing fastin China and government officials are talkingabout lifting minimum wages in the run up to theannual meeting of the National Peoples Congress,rate of industrial output.In other words,unitlabour cost(the labour cost required to produce aunit of output)of the Chinese manufacturingsector has still been falling rather than rising overthe last 18 months,although at a slower pace.Therefore,rising wages are offset by risingproductivity,and have not yet pushed up inflation.Chart 10.Key driver of wage growth is cyclical upturn in demand,(NPC)in early March.However,this is more areflection of the strong recovery in GDP growthand demand for labour than anything else.Beijing is now stepping up measures to battleinflation.We expect this to slow overall economicgrowth from last years 10.3%to around 9%this,40,(%yr)1992 1994 1996 1998 2000 2002 2004 2006 2008 2010,year,which will likely curb the acceleration inwage growth.Chart 10 shows that nominal,Nominal GDPNominal rural w age,Nominal w age,average wage growth(f