Let’s look at some data first: 2021, total retail sales of consumer goods increased by 34.2% in March, compared with 33.8% in January-February; exports (in USD) increased by 30.6% in March, compared with 60.6% previously; imports (in USD) increased by 38.1% in March, compared with 22.2% previously; social financing scale increased by 12.3% in March, compared with 13.3% previously; M2 increased by 9.4% vs. 10.1% previously; CPI in March was 0.4% YoY vs. -0.2% previously; PPI in March was 4.4% YoY vs. 1.7% previously.
The key words for the macroeconomic situation in 2021 are: global economic recovery resonance, inflation expectations, liquidity inflection point and market style switch. The logic is the same.
China’s GDP grew 18.3% in the first quarter, a two-year average of 5.0% year-over-year, down 1.5 percentage points from Q4 2020; quarter-over-quarter chain growth was 0.6%, down 2.6 percentage points from Q4 2020, with momentum slowing. Meanwhile, PPI surged to 4.4% year-over-year, accelerating 2.7 percentage points from the previous month, with commodity prices soaring and “all inflation after taking out the pigs.”
This is in line with our previous judgment that the economy will top out around the first quarter of 2021 and then return to potential growth rates, with growth rates being high before and low after. China’s economic cycle is moving from recovery to overheating and stagflation, with inflationary expectations rising and structural asset price bubbles, we may be standing at a cyclical inflection point of broad liquidity.
1. It’s all inflation after taking out the pigs
In recent years, China’s economic inflation cycle and the pig cycle is misaligned. 2019 China’s economic cycle in recession, but CPI rose, mainly due to the pig price surge. At that time, the author proposed that “after taking away the pig is deflationary”; “what you see is false inflation”; “you can’t sacrifice the whole national economy because of a pig”; and “the pig can’t stop the decline of the economy. “Pigs can’t stop interest rate cuts”.
In 2021, it is precisely “inflation after taking away the pig”, except for the price of pigs is falling, all other prices are rising, crude oil, steel, copper, chemicals and other prices are rising. The CPI in March was only 0.4% year-on-year, while the PPI was 4.4% year-on-year, a “deflation” and an inflationary peculiar phenomenon.
It is recommended that the CPI weighting be adjusted appropriately to reduce the proportion of food and increase the proportion of residential categories to better reflect the actual inflation felt by residents.
2, commodities soaring Increase in domestic imported inflationary pressure
Since the outbreak of the epidemic, international commodity prices have risen rapidly since the end of last year due to the resonance of the global economic recovery, the flood of dollar liquidity, and the widening of the supply-demand gap, with crude oil, chemicals, ferrous and non-ferrous metals increasing in price particularly significantly.
Commodities both financial and commodity two attributes, the main driving force of this round of rise is: dollar liquidity flood, Biden launched 3 trillion U.S. dollars infrastructure stimulus plan, the vast majority to be through the over-issuance of currency; global economic recovery resonance, with vaccines to accelerate inoculation, the U.S., Europe and Japan to speed up economic recovery; “carbon peak” target brought about by the steel production reduction Expectations, boosting ferrous metal prices.
The strong fiscal stimulus of the United States, commodity prices, Treasury yields upward, the return of capital, some emerging economies forced to raise interest rates, is undoubtedly still in the epidemic of emerging economies to add insult to injury. 2021 global economic recovery is likely to diverge.
3, may now be standing on the cycle of broad liquidity inflection point
Recently, a number of public policy sector meetings have focused on inflation, proposing “price stabilization”, “focus on commodity price trends”, “strengthen the regulation of raw material markets” and so on.
With the economic recovery returning to potential growth rates, rising inflationary expectations and rising broad asset prices, China is returning to normalizing its monetary policy and structurally tightening its credit policy. The Chinese monetary authorities are trying to maintain currency stability as a sign of responsibility.
As a result, China is standing at a cyclical inflection point in broad liquidity. The growth rates of M2 and social financing have recently slowed. At the same time, the central bank stated “no sharp turn”.
4, capital market style switch
Due to rising inflation expectations and liquidity inflection point, the capital market style has switched, high valuation plate due to rising interest rates and kill valuation, market style to benefit from price increases in cyclical products, low valuation plate, global trade recovery benefit plate.
This stands in the macro from top to bottom perspective, the logical clues are very clear.
5, small and medium-sized enterprises rising costs and profits are squeezed, worsening the employment environment, the economy “K-type” recovery
In recent months, the CPI and PPI scissors have expanded sharply. The impact of rising raw material prices on the profits of mid- and downstream enterprises has begun to emerge, for not yet fully recovered small private enterprises is even worse. Market research shows that the raw materials used in the air conditioning industry contains silicon steel, copper, aluminum and other price-increasing goods, resulting in a 10% increase in production costs, basically squeezing all profits. Glass, aluminum processing and other industries also face the problem of large price fluctuations, leading to a decline in orders and operational difficulties.
Recently, small and medium-sized enterprises generally reflect the phenomenon of reduced orders and cost squeeze profits, which deserves attention.
In the context of K-shaped economic recovery, SMEs are the main force in solving employment. Rising commodity prices increase the costs of SMEs and cannot be passed on, worsening their business environment as well as the employment environment on a macro level. Therefore, the employment environment for college students in 2021 is extremely severe.
In March, the official national urban survey unemployment rate was 5.3%, down 0.2 percentage points from January-February, but not yet back to the level of 5.2% at the end of last year; among them, the survey unemployment rate of people aged 25-59 was 4.8%, down 0.2 percentage points from January-February and 0.1 percentage points higher than the end of last year. The national per capita disposable income grew by 4.5% in real terms on average over two years in the first quarter; it grew by 6.8% in real terms in the first quarter of 2019.
6, industrial production slowed down at a high level, the resilience is still strong
Industrial production was at a low level in March, but the growth rate in the first quarter was not bad. 6.2% year-on-year industrial value added in March, down from the high growth of 8.1% in January-February, and 0.6% quarter-on-quarter.
Possible reasons: First, the environmental restrictions since mid-to-late March, the second is the commodity price increases and volatility, producers have a wait-and-see mood.
Exports continue to play a pulling role on the production side, export delivery value growth rate of 15.9% year-on-year, at a historical high.
Industrial value added growth rate of 6.8% in the first quarter, a slight decline from the 7.1% growth rate in the fourth quarter of 2020, in line with the trend of changes in the production side of the PMI in the first quarter.
7, the troika, infrastructure and real estate investment is facing slowdown pressure, consumption and manufacturing investment rebounded but difficult to hedge, exports are still strong but there is uncertainty
Consumption rebounded beyond expectations, but still has not returned to the pre-epidemic level. March social zero consumption two-year average growth rate of 6.3%, compared with January-February rebounded 3.2 percentage points, 1.75% ringgit, a significant marginal improvement. In the first quarter, the two-year average growth rate of social zero consumption was 4.2%, compared with 8.3% in the same period of 2019.
Looking ahead, however, the strength of the rebound in consumption is doubtful, constrained by residents’ income and employment.
High growth in infrastructure and real estate investment is unsustainable. real estate investment grew by a two-year average of 7.7% in March, up slightly by 0.1 percentage points from January-February. Real estate regulation increased, financial policy tightening, real estate companies’ sales and capital recovery speed decline to curb subsequent land investment momentum, real estate investment under pressure subsequently.
In the first quarter, infrastructure investment grew by 2.3% on average over two years, up 3.9 percentage points from January to February. With the economic recovery, the need for counter-cyclical adjustment fell sharply and local fiscal constraints intensified, infrastructure investment is under pressure.
The secondary industry maintained better growth, but the tertiary industry restoration was less than expected, which was related to the scattered epidemic years ago and reflected the lack of restoration capacity in the service sector. In the first quarter, the value added of the secondary industry grew by a two-year average of 6.0%, which is at a higher level in recent years; the value added of the tertiary industry grew by a two-year average of 4.7%, which is 2.0 percentage points lower than the fourth quarter of last year and also substantially lower than the pre-epidemic level.
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