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1、,Ben Bei,November 27,2012China in charts 10/12:Betterdata,weaker policyPortfolio Strategy Research,October shows improvement on fundamentalsOur China in Charts monthly monitor presents 80+charts of China highfrequency data from the macro to the micro(industry,corporate,etc.).September data showed im
2、provement in terms of leading policy andsentiment indicators,while fundamentals lagged.October data offeredmore fundamental proof of a recovery,but still only in some areas.,Helen Zhu+852-2978-0048 Goldman Sachs(Asia)L.L.C.Timothy Moe,CFA+852-2978-1328,Goldman Sachs(Asia)L.L.C.However,recovery is pr
3、ogressing only gradually,Policy loosening in the past months delivered more consistent industrial/investment trends in October,particularly as electricity generation andproperty data points picked up from previous weakness.Although sometrends were less robust than in September(e.g.,FAI growth was fl
4、at ratherthan accelerating,some commodities inventory trends diverged),the overalldirection is still positive.Consumption remains somewhat lackluster,but weexpect to see more consistent pickup in the coming months.Key question is,whats next?;a delicate transitionInterestingly,policy/sentiment indica
5、tors have looked less robust recently,perhaps as better data require fewer supportive moves.Our GS Global ECSResearch team expects stable rather than further loosening near-termpolicy.This is likely to spell a continuous but gradual recovery,in our view,rather than a sharp one.Upside risks for China
6、 equities are better exportdemand,more global risk-on sentiment,and faster pace of reforms(we feelthis latter point is essential,but we may not see much progress ahead of2Q13).Downside risks are a path to recovery that remains bumpier or aslope of recovery flatter than the market expects.Sept policy
7、 drove better Oct data;but sentiment pulled back again,Jason Sun+86(10)6627-3187 Beijing Gao Hua Securities Company Limited+852-2978-1220 Goldman Sachs(Asia)L.L.C.Chenjie Liu+86(10)6627-3324 Beijing Gao Hua Securities Company Limited,Investment/Industrial activities,July,Aug,Sep,Oct,Consumption acti
8、vities,July,Aug,Sep,Oct,Industrial productionElectricity generationOil productionOverall FAIInfra FAI,Retail salesDept store salesAuto salesMacau gaming GGRAirline passenger traffic,Property FAI,Policy and sentiment,July,Aug,Sep,Mfgr FAIGFA startsGFA completionLand salesMachinery salesCommodities pr
9、icesCommodities destocking,Liquidity conditions(M2)Fiscal conditionsA-share equity fund positionA-share account openingsEarnings revisionIndustrial profitsSOE profits,Note:Up=better yoy vs previous month,down=worse;sideways=unchanged.Source:NBS,CEIC,GS Global ECS ResearchGoldman Sachs does and seeks
10、 to do business with companies covered in its research reports.As a result,investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investorsshould consider this report as only a single factor in making their investment decision.For Reg
11、AC certification and otherimportant disclosures,see the Disclosure Appendix,or go to Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.,The Goldman Sachs Group,Inc.,Goldman Sachs,1),2),a.,b.,c.,d.,3),a.,b.,c.,2,November 27,2012,China,What d
12、rew our attention in the latest dataOctober data was largely predictable following the particularly strong September policyand sentiment indicators.The policy improvement that led in September turned into anoticeable pickup in industrial and investment activity in October,but consumption datausually
13、 lag by some time and remained lackluster.Interestingly,policy stance andsentiment recently took a step back,underpinning our view of a mild rather than sharprecovery,whether in terms of GDP growth(which should be evidenced by the next fewmonths top-down and bottom-up indicators)or earnings.What sur
14、prised us in the October data:Industrial activity data still leaned to the positive side,but were less alignedthan Sept:IP continued to pick up and electricity generation finally started to keeppace.Both HSBC and official PMI saw further improvement.Trade data weremixed as exports/imports edged up/d
15、own slightly.Refined oil products productionand highway freight throughput were both stable.Investment overall data set skewed to the positive:October FAI growth rate was flattish although infra FAI continued toaccelerate and property FAI was stable,manufacturing FAI drag continuedto worsen(particul
16、arly from mining and oil downstream areas).Property data recovered mom,but mostly owing to completions property completions recovered meaningfully from September lows forboth residential and non-residential.However,despite a rebound indevelopers new starts,new starts yoy remains in negative territor
17、y.Landsales also picked up slightly,previously just on volumes but now also onprices(which would put the sustainability of recovery at greater risk).Commodities trends diverged a bit.Steel prices continued to pick up,thanks to de-stocking.However,inventory inched up again for coal,copper,and aluminu
18、m,leading to modest retreat in ASPs.Cement pricesdiverged by region,with Eastern China prices rebounding the most.Wesee low visible inventories for most commodities and little motivation forrestocking now on an uncertain price outlook,so if demand continues topick up,these low inventory commodities
19、prices will likely rebound(thisexcludes structurally oversupplied commodities like aluminum).Capital goods also diverged,as excavator sales remained weak and didnot show signs of improvement.However,heavy-duty trucks(which havea larger component of replacement demand and a shorter life cycle)continu
20、ed their steady improvement in yoy sales.Consumption recovery appears to lag:Retails sales seasonally rose on absolute terms,but growth wasstable in October,which could be due to the early start of golden weekthis year(national day and mid-autumn festival holidays combined andstarted in late Septemb
21、er).Department store SSS meaningfully fell to negative territory,the firsttime since data became available.This was likely due to aforementionedseasonality.Our channel checks suggest a fairly robust rebound in earlyNovember.Auto sales yoy growth rate accelerated,while total volume wasflattish,but au
22、to production slowed further on volume and growth,possibly due to destocking.Goldman Sachs Global Economics,Commodities and Strategy Research,d.,4),a.,b.,c.,3,November 27,2012,China,Macau gaming GGG diverged,VIP slipped again to a yoy decline,whilemass market rose slightly.Policy and sentiment indic
23、ators less supportive than before:Policy stance turned less accommodative:Money supply pulled backwith M1/M2/loan growth all decelerating.The recent surging trend in totalsocial financing also slowed in October.The fiscal front was also a bitdisappointing as expenditure growth fell meaningfully in O
24、ctober andfiscal deposits were at a high level.Price pressure remained manageable;we will closely monitor foodprices:CPI yoy continued to soften,but PPI started to recover.Propertyprices(Tier 1 cities)pulled back further in October,leading to less needfurther tightening in the near term.However,food
25、 prices havemeaningfully rebounded since early October,triggering some marketconcerns that CPI may pick up a bit into 4Q12.Capital market sentiment turned more negative as well:Earningsrevision sentiment reversed to the negative side again,although stillabove its August trough.A-share fund positions
26、 continued to slide alongwith the sluggish market performance.In addition,A-share new accountopenings tumbled to a new trough.Our current market views:Recovery largely expected;key is reformReasonable recovery is now consensus view.Our discussions with offshore investorsindicate that China has likel
27、y passed its cyclical trough in 3Q12 and that we are firmly in arecovery phase.While concrete data have yet to support this view across the board,wehave seen enough inflection in the leading indicators(i.e.,the investment and industrialactivity side)and we think that other lagging areas(like consump
28、tion)will follow.Cyclical nuances likely to be dictated by exports and policy.Cyclical upside anddownside surprises may now depend on how smoothly or sharply the fundamentalrecovery develops.Exports may be a key variable and its directional movement may be themost likely determinant of policy respon
29、se in China.In the absence of major volatility in thedata,our China economics team expects limited further policy loosening in the near-termgiven that fiscal spending is more spread out in 2012 vs prior years and monetary growthis already relatively loose(TSF+19.1%yoy in October 2012).Reforms are in
30、creasingly more important to market performance.We believe thepivotal driver of performance will shift to reforms,which are vital to economic growthsustainability or visibility,even if it may mute the quantity of growth slightly.With the newleaders gradually taking over the reins between now and Mar
31、ch 2013,we expect increasedscrutiny on their policy statements and on the likelihood that they will push throughreforms.However,we think this may not happen until at least 2Q13,after the handover iscomplete.We may see a period of sideways performance for offshore China in the comingcouple of months.
32、Going into 2013,we are constructive on China equities,as we see asupportive gradual recovery macro backdrop,low valuations and positioning,and greaterlikelihood of reform progress post the leadership transition.However,in the next couple ofmonths,before we can see a clear stance on reform,we believe
33、 the focus will remain onthe cyclical issues.There,we think the possibility of upside and downside surprises may bemore balanced for offshore China equities(but we see some room for upside surprise forA-shares given the noticeably lower cyclical expectations there).Goldman Sachs Global Economics,Com
34、modities and Strategy Research,Sep-09,Sep-10,Sep-11,May-09,May-10,May-11,May-12,Mar-09,Mar-10,Mar-11,Mar-12,Nov-09,Nov-10,Nov-11,Sep-12,Jan-10,Jan-09,Jan-11,Jan-12,Jul-09,Jul-10,Jul-11,Jul-12,60,(%),4,November 27,2012Macroeconomic indicatorsExhibit 1:IP growth(yoy and sequential)rebounded,together w
35、ith both official and HSBC PMI,ChinaExhibit 2:De-stocking continued in both upstream anddownstream industrial sectors,30.0,IP%yoy,IP%qoq(sa,ann),Official PMI,HSBC PMI,RMB bn40,Upstream,Downstream,25.0,35,553020.0,50,25,15.020,10.05.0,4540,1510,0.0,35,50,-5.0-5,-10.0,30,Jan-09,Apr-09,Jul-09,Oct-09,Ja
36、n-10,Apr-10,Jul-10,Oct-10,Jan-11,Apr-11,Jul-11,Oct-11,Jan-12,Apr-12,Jul-12,Oct-12,-10,Source:CEIC,NBS,GS Global ECS Research.Exhibit 3:Infra continued to pick up and support total FAIgrowth,offsetting the slight drop in manufacturing,Source:CEIC,NBS,GS Global ECS Research.Exhibit 4:Most components o
37、f infra FAI are accelerating,particularly railways,Total FAI yoyReal estate FAI yoy,Manufacturing/mining FAI yoyOther FAI yoy,Infrastructure FAI yoy,ytdgrowth,Total infrastructureTransport(ex railway),Utilities production and supplyWater conservancy&environment,Railway transportEducation/healthcare/
38、sports,60%,ytd,150%,growth,130%,50%110%90%40%70%,30%20%,50%30%10%,-10%10%-30%,0%,Jan-09,Apr-09,Jul-09,Oct-09,Jan-10,Apr-10,Jul-10,Oct-10,Jan-11,Apr-11,Jul-11,Oct-11,Jan-12,Apr-12,Jul-12,Oct-12,-50%,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Source:NBS,CEIC,GS Global ECS Research.Exhibit
39、 5:CPI further softened yoy,but PPI andsequential CPI rebounded a bit,Source:NBS,CEIC,GS Global ECS Research.Exhibit 6:Food prices climbed slightly in Oct,CPI%yoy,CPI%qoq(sa,ann),PPI%yoy,PPI%qoq(sa,ann),Agricultural Product Price Index(2000 level=100,LHS),Agricultural Product Price yoy growth(RHS),2
40、0.0,250.0,25,%15.020,10.05.0,200.0,15,150.00.010-5.0100.0,-10.0,5,-15.050.00-20.0,0.0Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11,Oct-11 Jan-12 Apr-12 Jul-12 Oct-12,-5,Source:CEIC,NBS,GS Global ECS Research.Goldman Sachs Global Economics,Commodities and Strategy Research,Source:CEI
41、C,NBS,GS Global ECS Research.,50%,600,50,5,November 27,2012Exhibit 7:Most sub-segments within manufacturing FAIshowed growth deceleration,Exhibit 8:Fiscal deficit balance decreased in Oct onfalling expenditures,China,ytdgrowth,MiningsOil and gas downstream,Agriculture,food and beverage downstreamMet
42、als and minings downstream,RMB bn,Monthly fiscal revenue,Monthly fiscal expenditure,MachineryTotal manufacturing,Transportation,1,400,Monthly fiscal balance,Fiscal revenue yoy growth-RHS,75%,Fiscal expenditure yoy growth-RHS,45%40%,1,2001,000,55%,35%30%25%20%,800600400200,35%15%-5%,15%10%,0,-25%,-20
43、05%,0%,-400,-45%,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Source:CEIC,GS Global ECS Research.Exhibit 9:Fiscal deposits rose in Oct,Source:CEIC,MOF GS Global ECS Research.Exhibit 10:Money/credit supply slowed vs Sept,RMB bn400200,CN:Deposit:New Increased:FiscalMonthly incremental fisca
44、l deposit yoy growth-RHS,1400%1200%1000%,RMB bn2,0001,8001,600,Monthly incremental loanM2 yoy growthLoan(medium&long term)growth yoy,M1 yoy growthLoan(short term)yoy growth,(%)4540,0,800%,1,400,35,-200,600%,1,200,30,-400,400%,1,000,25,-600,200%,-800-1,000-1,200-1,400,0%-200%-400%-600%,8006004002000,
45、20151050,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Source:CEIC,MOF,GS Global ECS ResearchExhibit 11:Trade recovery decelerated in Oct despiteexport growth inching upward,Source:CEIC,NBS,GS Global ECS ResearchExhibit 12:Summary table key macro data in recentmonths,(yoy%)90.0,Export,Impo
46、rt,Key macro dataIP(yoy%),May-129.6,Jun-129.5,Jul-129.2,Aug-128.9,Sep-129.2,Oct-129.6,FAI(yoy%),19.9,21.1,20.4,19.0,22.2,22.2,70.050.030.010.0-10.0,Exports(yoy%)Imports(yoy%)Retail Sales(yoy%)Official PMI(%)HSBC PMI(%)CPI(yoy%)PPI(yoy%)M2(yoy%)CNY Loans(yoy%)Monthly incremental loan(RMB bn)Chg of Fi
47、scal desposit(RMb bn),15.312.713.850.448.43.0-1.413.215.7793.2265.2,11.36.313.750.248.22.2-2.113.616.0919.8-236.0,1.04.713.150.149.31.8-2.913.916.0540.1427.4,2.7-2.613.249.247.62.0-3.513.516.1703.940.6,9.92.414.249.847.91.9-3.614.816.3623.2-369.8,11.62.414.550.249.51.7-2.814.115.9504.7480.6,-30.0-50
48、.0,Jan-09,Jul-09,Jan-10,Jul-10,Jan-11,Jul-11,Jan-12,Jul-12,Source:CEIC,NBS,GS Global ECS ResearchGoldman Sachs Global Economics,Commodities and Strategy Research,Source:CEIC,NBS,GS Global ECS Research,Insurance,Energy,Telcos.,Banks,Healthcare,Cons.Stap.,Cons.Disc.,Property,Utilities,Industrials,Mate
49、rials,MXCN,I.T.,Cons.Disc.,Property,Utilities,Cons.Stap.,Industrials,Materials,Energy,Telcos.,Banks,I.T.,Cons.Disc.,Energy,Utilities,Financials,Telcos,I.T.,Healthcare,Industrials,Materials,MSCIChina,Cons.Stap.,Healthcare,Industrials,Financials,Telcos,Cons.Stap.,Materials,Energy,Cons.Disc.,Utilities,
50、Healthcare,CSI300,I.T.,May-08,Nov-08,May-09,Nov-09,Aug-10,May-11,May-12,Aug-08,Aug-09,Aug-12,May-10,Nov-12,Nov-10,Nov-11,Feb-09,Feb-10,Aug-11,Feb-12,Feb-11,CSI300,11,14,6,November 27,2012Markets and earningsExhibit 13:MXCN reached double-digit returns ytd,thanks to valuation re-rating60%,Exhibit 14:
