ab2 February 2024Global Research and Evidence LabChina Economic CommentData Preview: Deeper CPI Deflation, Slower Credit Growth, Soft MomentumData preview: deeper CPI deflation and slower credit growth on high baseJanuary NBS PMI was less bad while Caixin PMI stabilized, but property sale growth stayed subdued despite a low base. January and February real activity data will be released together in March. High frequency data and limited January data release may be distorted by the late timing of Chinese New Year (CNY) in 2024 and reopening in early 2023. We expect the upcoming January data release to show larger CPI decline on high base, continued deep PPI deflation, slower credit growth, and a small decline in FX reserves. Meanwhile, our UBS China High Frequency Data Monitor and Daily Activity Tracker show slightly better y/y growth of UBS China Activity Index in January, while the underlying growth momentum stayed soft.Modest policy support ahead in 2024PBC cut RRR by 50bps, hinted at policy rate cut, and encouraged banks to provide credit support ("operating loans") to qualified property developers in January (see our comment). We see additional property easing measures in 2024, including pushing for urban village renovation and social housing construction with more PSL and other low-cost public funding. We expect a decent headline fiscal deficit at 3.5-3.8% of GDP (including possible issuance of new special treasury bonds), larger quota of special LG bonds at RMB 4 trillion, and another RMB 2-3 trillion of special refinancing LG bonds to swap qualified LGFV debt and/or repay corporate arrears. We see 10-20bps policy rate cut, with the first cut possibly before the March NPC meeting. We also believe another small RRR cut is possible (25-50bps), and a robust credit growth at 9.5%. See more in our CEWC takeaways and 2024 key themes & surprises.Figure 1: China Data Preview - January 2024Jan 2023Dec 2023Jan 2024（Actual）（Actual）（UBSe）CPI (% y/y)2.1-0.3-0.6PPI (% y/y)-0.8-2.7-2.8Monthly new loans (RMB billion)4,9001,1704,300Monthly new TSF (RMB billion)5,9961,9405,300M2 (end-period, % y/y)12.69.78.8M1 (end-period, % y/y)6.71.32.0FX reserves (USD billion)3,1843,2383,228Source: CEIC, UBS estimates. Note: IP, property, FAI, retail sales data on Mar 18; trade and FX reserves data on Mar 7; CPI and PPI data on Feb 8; money & credit data on Feb10-15.This report has been prepared by UBS Securities Asia Limited. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES, including information on the Quantitative Research Review published by UBS, begin on page 9. EconomicsChinaNing ZhangEconomist ning.zhang@ubs.com +852-2971 8135Jennifer ZhongEconomistS1460516050002 jennifer-a.zhong@ubs.com +86-105-832 8324Grace WangAssociateS1460122080006 grace-zc.wang@ubs.com +86-105-832 8335Tao WangEconomist wang.tao@ubs.com +852-2971 7525 China Economic Comment 2 February 2024ab 2PMIs and high...
