China: Soft landing scenario is holding - BBH

Research Team at BBH, notes that the China reported its April reserve and trade figures over the weekend and will report inflation, lending, industrial output and investment, and retail sales this week.

Key Quotes

“China’s reserves rose for the second consecutive month. Currency fluctuations probably played a small part in the increased valuation, though given the current account surplus, many observers will argue reserves growth should have been greater. In any event, by any metric, Chinese officials have managed to stabilize capital outflows.

Measured in dollar or yuan, China’s trade surplus swelled. At $45.56 it was the biggest surplus in three months. The same is true when measured as CNY298 bln. In dollar terms, exports and imports are still declining on a year-over-year basis. In yuan terms, exports rose 4.1%, and imports were off 5.7%.

Lending growth is expected to have moderate while economic activity should firm. Although many investors and policy makers are anxious about it, the data in hand, and projected, suggests the soft landing scenario is holding.

In a strong US dollar environment, the yuan may closely track its trade-weighted basket. This will discourage criticism that the PBOC is seeking to devalue the yuan. In a softer dollar environment, such as over first few months of the year, the yuan tracks the dollar and under-performs against its basket. Of course, Chinese officials can change tactics at any time.”