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1、,ra,n,sp,er,al,on,w:,GA Yuan,AO,ed,in,Con,ntact:,po cu,nt;,Em,Em,my,Macro Research,Weeekly Macro Report,Aug.20,2012,Raapid groowth of investmment dooesnt mean apidgrowth of production capacittyVieews of this week:Increasing concerns over overcapacity in the marrket.There is another ogicalprooblem in
2、 the judgment of overcappacity beside the disccussion on data:oveercapacity is a periodic phenomenon and the exxtent of overccapacity couuld bejudged from mployment situation and periodic proggress;if the overcapacity is along-term phenomena caussed by the pecial social system,we will need to knowho
3、w serious it is.We look for the answwer from the investment data becausse thegroowth of capaccity is achievved by FAI.We found that the capital formation in macro level is much slowe than the grrowthof FAI,the growwth of industrial capacity in meso leve is much slower than hat ofindustrial invesstme
4、nt and growth rate of industria capacity with textual dataconntinued to drop after 2006 due to data distoortion,possibble corruptio ininveestment and rise of land cost.,CHHEN YongChiief Macro AnalyystSACS085051207000050211-2321 9800,So the rapid grrowth of inveestment in China doesnt equal to the ra
5、pid growwth ofcappacity and the long-term overcapacity should be viewed with discount.Weeekly review,Dommestic Price:food price saw slight risse last week while the non-food price eyeddowwns.Liquiditty:the oversseas risk avooidance sentiment staye low and fundsflew out from Chhinas equity fund.The n
6、terest rate in the money market increeased,Macro AnalystSACS085051202000010211-2321 LI Ning,sligghtly and exppectation of RMB depreciiation was strengthened last week.On policy side,Premier Wen said the economic downturn would last for sometime,and there were five ositive changges at the urrent stag
7、e:1.Stable grrowthof investment and consummption;2.Slight rise of industrial prroduction in EastChiina;3.Stable employmen 4.Effectivve structure adjustment;5.Inflation drops,prooviding more space for monetary policcy.,mail：In conclusion,overseas ecoonomic situation recovereed and domeestic inflation
8、 was,ZHOU Xiamail：,likeely to bottom but the liquidity shortaage needs to resolved by specific policy.Currrent econom is at botttom and will be in fluctuuation with no trend in a longperriod and any small channges that arre viewed as long term trend should betreaated with caution.We arre not pessimm
9、istic to the economy but keener on theeffeect of short-term econoomic policy and the proogress of mid and long-termecoonomic transsformation.Please read the disclaiimer at the end of the eport,2,lo,la ng,se,ra,nd m.,3,lis in,Macro Reesearch Weeekly Macro Report,1.Raapid groowth of investment doessnt
10、 equual to rappid,grrowth of producction cappacity,Focus on the productiion overcapaacity in the market increaased,which makes us takkemore into consideratioon.,There is another logiccal problem in the judgmeent of overcaapacity besiddes the discussionon data:over capacity is a periodic phenomenna(O
11、ver cappacity,Deflatiion and CycleAdjustmeent,2012/07/30),and the extent of over capacity could be judgged fromemployment situation and periodic progress;if the over capacity is a ong-termphenomeena caused by special social system,we will need to know how serious it is.,We look for the answwer from
12、the investment data becauuse the growwth of produuctioncapacity is achieved by FAI.,1.1 FAI and FAF,FAI has arge intersecction but diffeerent meanin with fixed assets formaation(FAF).Theproduction capacity growth in maccro level should be more relevant to FAF.,By statistics,FAI is alwways similar to
13、 FAF in treend but with periodic devviation in middleand shortt-term.Accorrding to the data in the paast 30 years,the growth rate of FAIcoincided to that of AF in 1988-22002 but deviation was een in 1981-1988 and2002-2011,in which the growth ate of FAI conntinuously exxceeded that of FAF.,We usually
14、 think that FAF is a bettter indicator of production capacity exxpansion.Annd thefact that growth rate of FAI continuuously exceeeds that of AF indicates that the growwth ofFAI is faster than the production capacity expaansion in agggregation whhich will last inmiddle-term.High groowth rate of FAI d
15、oesnt always mean high growth rate of FAF inmiddle an short-term,One causse is the corrruption in invvestment,and the other is the high grrowth of land costafter 2003 which is sted in FAI nstead of FAF.,Chart1 growth rates of FAI and FAF(%),Source:CEIC，NBSC and Haitong Secuurities,1.2 Induustrial in
16、vvestment and produuction cappacity expaansion,Please read the disclaiimer at the end of the eport,3,co,de tw,flu,flu s.,ed st,s,15,be,th,s.,al,in,ra,as in ra,er,ra,wn,Macro Reesearch Weeekly Macro ReportBy the omparison of the growth rate of industrial invesstment and that of produuctioncapacity in
17、 meso level,we could find that eviation betwween this wo items exissts inalmost evvery industry and the uctuation of the growth rate of produuction capaccity isnarrower than that of investment in general,which may be caused by lagging effeect orthe industtry itself and the mood uctuation of the inve
18、storsUpstream energy inddustryLarge deeviation betwween the groowth rate of investment and produuction capaccity inupstream energy induustry appeare in the pas 20 years.The growth rate of investtmentwas supeerior to that of production capacity in both number and amount of variation.For exammple,in t
19、he past 20 years the growth rate of invesstment of the coal mining andprocessinng industry fluctuated bettween-24%and 73%whhile that of prroduction cappacityfluctuated between-10%and 5%;the growwth rate of investment of oil exploittationindustry fluctuated etween-7%and 48%whhile that of production a
20、pacity fluctuuatedbetween-12%and 166%.The aveerage growth rate of inveestment was also higher thanthat of production apacity in he coal minning and proocessing and oil exploittationindustries,Chart2 Growth of crude coal producttion capacity andhat of coal miining and proocessing inveestment(%)Soourc
21、e:CEIC，NBBSC and Haitong Securities,Charrt3 Growth of crude oil prooduction capaacity and in oiland that of oil and gas exploitation investmment(%)Sourcce:CEIC，NBSC and Haitong Seecurities,Heavy hemical of midstream basic materiaHeavy chemical indusstries of midsstream basic material inclluding chem
22、ical industry,steeland cemeent have obvvious periodicity with a trend similar to that of inveestment but largedeviation in number,between growwth rates of production capacity and investment.The chemmical fiber inddustry saw large fluctuattion in the grrowth rate of investment after2000.Thoough its t
23、rend of growth rate of produuction capaciity was almoost in line with thatof investmment,the nvestment grrowth rate was higher than the prooduction cappacitygrowth ate in the invvestment acccelerating peeriod and sligghtly lower in the decelerratingperiod.Different situation wa seen in the steel ndu
24、stry after 2000.The growth ate ofinvestmen was highe than that of production capacity beefore 2004,and climbed from2.5%to 85.6%(growwth rate of production apacity stayeed at 30%-440%).After 2004,growth ate of investmment in the steel industry glided and fluctuated back while hat ofproduction capacit
25、y stepped dow with the inflection points in 2002,2005 and 2008.Please read the disclaiimer at the end of the eport,4,in%),el,ng,ra,pe,as th on nt,th ra,sim er,on,Macro Reesearch Weeekly Macro ReportAfter 2008,the growth rate of inveestment in the steel indusstry got close to 0.,Chhart4 Growtth rate
26、of chemical fiber producctionapacity and nvestment(%Soource:CEIC，NBBSC and Haitong Securities,Chaart5 Growth rate of stee production capacity andinvestment(%)Source:CEIC，NBSSC and Haitong Securities,Mid and downstream assemblin and processing induustry among machineryMid and downstream assembling an
27、d processsing industry among macchinery is cloose tothe demaand end and its investmeent is easily affected by the change of demand.Thegrowth ate of investmment is much higher than that of production capaccity.As per the past experience,the grrowth rate of investment and production capacity of thetra
28、nsportaation machinnery manufaacturing induustry enjoyeed strong eriodicity and theformer wa leading he latter by ne to two yeaars.By statisstics in recen years,wide gapexisted between the growth rattes of produuction capaccity and invvestment of automanufactturing.For example,in 2007 before the fin
29、anccial crisis,he growth ate ofinvestmen arrived at 30%while hat of producction capacity went at only 16%.The growwth rate of reggular machinnery manufaccturing indusstry boomed after 2000 andstarted to slump in 20005;whilst its growth rate of productioon capacity was comparaativelystable,whhich was
30、 milar to that of investment in trend but much slowe instead.Thhissituation was distinct in 2001-20088the growtth rate of production capaacity stayed within10%when that of inveestment surgged from 18.66%in 2001 to 79.1%in 2005 and climmbedto about 20%in 2005 and fell back to 10%.,Chart6 Growth of tr
31、ansportatioon machinery investment and thatof auto production capacity(%)Soource:CEIC，NBBSC and Haitong Securities,Chartt7 Growth of power generration equipmment productiocapaccity and regula machinery manufacturing investment(%)Sourcce:CEIC，NBSC and Haitong SeecuritiesPlease read the disclaiimer at
32、 the end of the eport,5,d,al,er,he ro od,ek,Ju,on,ce us,in ek,th,ed,ex,ro,th,ex,ek,fo,ba,es,s,Ta,ng ek,ut ng,Macro Reesearch Weeekly Macro Report,We found that the cappital formation in macro evel is much slower than the growth of FAI,the growtth of industria production capacity in meso level is muc
33、h slowwer than that ofindustrial investment and growth rate of industtrial productioon capacity with textual datacontinued to drop afte 2006 due to data distortion,possible corruption in investmeentand rise of land cost.So the long-term over apacity shoulld be viewed with discount.,2.Th food price o
34、se slighhtly and non-foo price,drropped last wee,CPI of un increased by 1.8%YooY and 0.3%MoM,slighttly exceeding the expectaation.Food pricce dropped slightly in genneral and ressident produccts price incrreased due to thetiered pricing for powwer,increasse of service prices succh as tourissm exceed
35、ed theexpectatio with the entry of summmer.PPI droopped by 2.99%YoY and 0.8%MoM,lowerthan expeectation.The upstream(excavation industry)prrice topped the drop.PIRMdecreased by 3.4%YoY and 0.8%MoM and fuel and eneergy topped the drop.Drrop ofPPIRM to PPI conttinued to grow,which was favoraable to the
36、 improvement ofdownstream GPM.We primarily estimate that CPI of Aug would increease by 1.9%YoYand PPI would drop by 3%YoY.,2.1 Pric rise of vegetable and egg contributees to the continuourise of agriculturral produccts price ndex in the 2nd wee of Aug,During he 2nd week of Aug,whoolesale Price Index
37、 from MoA and edible agricuultural,products price from MoC continue to rebound slightly.Edible agricultuure products priceindex froom MoC inccreased by 0.31%,whille wholesale price Inde of agricuulturalproducts from MoA ose by 1.88%,The main cause of he slight rise in edible agricultural prooducts i
38、s the rise in vegeetableand egg prices.Accoording to staatistics releassed by the MoC on agrricultural products,prices in the 2nd week of Aug,grrowth rate of vegetable price fell sligghtly and foood oil,grain and egg prices saw increase while otherrs stayed flatt.,2.2 Agrricultural products price in
39、de is very likely to riise during the3rd wee of Aug,Although the agricultuural product price index has not beeen release or the 3rd weeek of,Aug,it is possible to carry out esstimates usinng high frequuency data.Judging from the,rd,MoAs asket productts wholesale price index,it will continnue to rall
40、y in the 3 weeek ofAug.The national graain and oil whholesale pricce index released by grain.coom for,the 3rd weeek of Aug continued to grow WoW,specifically,the price of grain rose MoM,and food oil prices inddex rose slightly.,Pork price were the main impetus behind the rise of inflattion in 2011,b
41、ut they beggan tofall in early-2012.The MoA tracks weekly pork price trends and the latest data indicates,the price of wholesale pork droppe slightly in the 3rd week of Aug while that of the piglet,increased slightly.aking into acccount each data segmeent,we foreecast the edible,rd,agricultuural pro
42、duct price index to increase slightly in the 3 week of Aug.,2.3 Mannufacturin input prices droppped in the 3rd wee of Aug,In the 3rd week of Auug,manufaccturing inpu price droppped,amon which droop of,Please read the disclaiimer at the end of the eport,6,in,M.ce,th ul ba,th,SH,ng,es,as co,PB os,RM,i
43、n 40,st,bn,nt re,Macro Reesearch Weeekly Macro Reportbuilding materials narrowed whhile that of energy flucttuated and that of chemmicalindustry turned from increase to decrease.The thermal coal price dropped by 4.97%.The WTI crude oil pricce released by Nymex ncreased by 0.75%MoM.Copper pricce fell
44、by 0.27%MoM,and among chemmicals,PTA price drop by 0.62%MoM Regular ementprice dropped by 1.335%MoM,wire rod pricce fell by 0.28%MoM and copper pricedropped by 0.27%MooM.3.Liquidity:liquidity tended to be tight in ChinaThe intereest rate in he money maarket was in upward trennd in early Ju and fell
45、ack inmid Jul and rallied this week.Shibbor overnight interest rate rose by 74.1 BP WoW whilethe 7-day interest rate increased by 56.4 BP.We estimate the interest rate in the moneymarket will continue to stay high due to the maature of reverse repo in he future.Chart 8 Shibor（%）9,87654321,SHIBOR:1da
46、y,HIBOR:1week,SHIBORR:3months,7/4 7/21 8/12,9/6 9/30 10/28 11/22 12/15 1/10,2/7,3/1 3/26 4/19 5/15,6/7,7/3 7/26,Source:WIND and Haiton Securities3.1 Revverse repo continuePBOC ha been impplementing ontinuous everse repo since early Jul to relieve theinterbank liquidity.BOC implemented three reverse
47、repo on Tuesdday and Thursdaylast week with total amount of MB140bn.Thhe one on Tuesday was 7-day RMBB50bnwhile thosse on Thursdday was 7-day RMB70bn and 14-day RMB20bn.The interes rateof 7-day reverse repo stayed flat at 3.35%annd short-term fund demaand of the marketstayed strrong while nterest ra
48、te of 14-day reverse repo drropped by 0BP WoW.Net liquiddity increase in the open market finallly went at RMB75bn las week,up WoW.The liquiddity in the open market will be tight in the coming four weeks due to the matureof reverse repo whicch will arrive at RMB-877bn,RMB11bbn,RMB23b and RMBB25bnresp
49、ectiveely.We foreccast PBOC will continue to implemen reverse epo or cut RR inthe open market.Please read the disclaiimer at the end of the eport,7,in,ng,in,ra,cu,se,nt th,mic fo e,ck po,Macro Reesearch Weeekly Macro ReportChart9 Operation in open market(RMB 100mn),4000,Liquidity ncrease,Liquuidity
50、decrease,Net increase,3000200010000,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2011,2012,2012,2012,2012,2012,2012,2012,2012,2012,2012,2012,-1000,-01,-01,-02,-03,-04,-04,-05,-06,-06,-07,-08,-08,-09,-10,-10,-11,-12,-12,-01,-02,-03,-03,-04,-05,-05,-06,-07,-07,-
