“While global demand will probably remain fragile, we maintain our above-consensus forecast that China’s 2013 GDP growth will recover to 8.6% (versus 8.1% consensus) after bottoming out in 4Q 2012, overshooting the likely 7.5% 2013 growth target to be unveiled at the upcoming Central Economic Work Conference,”
“Infrastructure investment will gain momentum as recent new projects get up to speed. Meanwhile, property investment is stabilising thanks to rising sales. All this, plus resilient consumer spending, should fuel a rebound next year and beyond.
“The rebound will be more modest than the V-shaped recovery in 2009, staying below the potential growth rate while inflation should stay in check.”
The bank expects interest rates will remain unchanged in 2013 as growth bottoms out and says to support infrastructure projects, fiscal spending needs to be stay above 16% next year, “which should not be a problem for Beijing”.
“Interest rate liberalisation, bond market expansion and capital account liberalisation, fiscal and tax reforms, deregulation to revitalise private business is likely in infrastructure, financial services, energy and telecoms, and income distribution reform. RMB internationalisation will continue to gain momentum,” he writes.
The one dark spot on the China’s economic horizon is a potential external shock during 2013. The economist reports the US fiscal cliff and a potential deterioration of the European economy are likely to trigger a chain reaction in international financial markets and global economic growth.
“China is not immune to this, as shown by the sharp deceleration of export growth this summer. However, should this happen, we believe China has sufficient policy ammunition to introduce additional easing measures to avoid a hard landing,” he said. Short-term uncertainty in thermal markets
In a separate report, Deutsche Bank analysts Michael Hsueh and Mark Lewis focus on the thermal coal market and report short term concern about ongoing relatively high inventory levels at Chinese independent power producers.
“Although they have been drawn down to 22 days of consumption, this still represents a historically high level relative to the c.15 days of consumption which has been a trigger for inventory builds in 2010 and 2011 and consequently, rising Qinhuangdao prices,” they note.
“In addition, small mines which were shut in the run-up to the 18th National Congress in early November will now be restarting production, adding to supply during the December to January period which has been typically characterised by an inclination to draw supply from inventory in the past three years.
“On the other hand, February has been characterised by inventory building and hence we expect that we may see some strength in the Qinhuangdao price closer to this time.
“The improvement of China’s PMI figures and industrial activity in the last two months has been matched with an increase in the year-on-year comparison of coal demand.
“However, we expect only a modest increase in manufacturing PMI figures in Q1-2013 to 51 on the HSBC reading, but a more significant improvement is implied by our Q3 and Q4-2013 GDP forecasts which rise towards the trend rate of growth, 8.4% and 8.5%, respectively, from 7.8% in Q4- 2012.
Commenting on Chinese hydropower, the bank predicts a further build of 19GW in capacity next year will add to electricity production over the first half of the year. Hydropower could produce an additional 21Mt in coal-equivalent terms in the first half of 2013.
“Moving into the second half of the year, hydropower production may be relatively unchanged as the increase in capacity is offset by a fall in utilisation, which has been particularly high in H2-2012.
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