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.
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.
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
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.
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
Sources: China Customs and Haver Analytics.