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World Economy

24

OPEC Monthly Oil Market Report – August 2017

these growth targets are overly ambitious, given domestic headwinds such as excess capacity, leading to an

excessive reliance on policy stimulus.

In 2H17 some of the positive factors seen for China’s GDP growth rate are the fiscal boosts the government

will provide to support investments, tighter monetary conditions, flexible consumption and a robust services

sector, and to cut overcapacity. However, some of the negative factors include financial imbalances building

up, non-financial corporate and FX capital outflows, and a slow or skewed reform process.

Chinese

fiscal revenue

rose 8.9% y-o-y to CNY 1.7 trillion in June, accelerating from a 3.7% growth in May,

according to a release from the Ministry of Finance. In the first six months, fiscal revenue grew 9.8% y-o-y,

compared with 7.1% in the same period of 2016. Supported by rising industrial prices and industrial profits,

the industrial value-added tax (VAT) and the corporate income tax expanded 21.9% and 15.6%, respectively.

VAT and consumption tax on imported goods jumped by 34%, driven by strong import growth. Meanwhile,

fiscal expenditure grew 19.1% y-o-y compared with 9.2% growth in May. Improving fiscal revenue and

merchandise imports, as well as stable industrial inflation, suggest a stable economic growth in the 2Q.

China also recorded a government debt equivalent to 46.20% of the country's GDP in 2016.

China's

consumer prices

rose 1.5% y-o-y in June of 2017, the same pace as in May and matching the

market consensus. The inflation rate remained at its highest level since January, as the cost of non-food

items slowed slightly while the cost of food fell at a slower pace. China's producer price index (PPI) stood at

5.5% in June, flat against May. Meanwhile, the sub-index of prices of the June PMI reflected an improvement

in price growth for the first time since February.

Graph 3 - 24: Chinese CPI and PPI

Graph 3 - 25: Chinese trade balance

China's merchandise

exports

expanded 11.3% in June compared with 8.7% in May. China's merchandise

imports expanded 17.2% in June, improving from 14.5% in May. The volume of imports of iron ore

accelerated to double-digit growth, reflecting the rising prosperity of the ferrous metal sectors. Meanwhile,

crude oil imports growth rose in June, compared with May. The two consecutive months of improvement in

imports implies stable domestic demand in the 2Q17. This is in line with stronger June official manufacturing

PMI. China’s trade surplus increased month-on-month but remained below the level in 2016. China’s trade

surplus in June amounted to $42.8 bn, marking the fourth consecutive month of increase. Accordingly,

China’s foreign reserves have risen for five consecutive months, and reached $3.06 trillion by the end of

June. The recovery of international demand will continue to support Chinese exports in the 3Q. This will also

support the stabilisation of the Yuan exchange rate and domestic liquidity. Moreover, the y-o-y trade surplus

may continue to decline at a slower pace, pointing to a smaller drag from net exports on GDP in the 3Q.

However, the European Union is likely to end its monetary easing policy and the United States may increase

its interest rate in the 2H17, which could pose a risk to China’s exports growth. Meanwhile, the slower

expansion of real estate and infrastructure investment is likely to be drag on China’s imports. Although China

largely kick-started the recovery in global trade, its import growth has been falling since 1Q17. Meanwhile,

strengthening demand outside of Asia has boosted China’s exports and they are now outpacing imports.

Asian trade data show that import demand growth outside of Asia has been healthy. However, it seems

global trade growth peaked in 2H17. On the positive side, import demand growth in the US, Europe and

other non-Asian regions has been increasingly healthy.

-10

-5

0

5

10

15

20

25

Jul 15

Sep 15

Nov 15

Jan 16

Mar 16

May 16

Jul 16

Sep 16

Nov 16

Jan 17

Mar 17

May 17

Jul 17

CPI

PPI

Official interest rate

Average house price in 100 cities

Sources: China Index Academy, China National Bureau of

Statistics, Soufan and Haver Analytics.

% change y-o-y

177

197

-131

-154

45

43

-200

-150

-100

-50

0

50

100

150

200

250

Jun 16

Jul 16

Aug 16

Sep 16

Oct 16

Nov 16

Dec 16

Jan 17

Feb 17

Mar 17

Apr 17

May 17

Jun 17

US$ bn

Exports

Imports

Trade balance

Sources: China Customs and Haver Analytics.