2019 Article IV Consultation-Press Release; Staff Report; Staff Statement and Statement by the Executive Director for China
1. This statement contains information that has become available since the staff report was circulated. This information does not alter the thrust of the staff appraisal.
2. Recent data releases are broadly in line with staff projections:
Q2 GDP growth was 6.2 percent (y/y), in line with staff projections and marginally lower than 6.4 percent in Q1. Growth was driven by rebalancing: services contributed more to growth than industry (3.6 percentage points vs industry’s 2.3), and consumption more than investment (3.4 percentage points vs investment’s 1.6); net exports remained a positive contributor to growth, at 1.2 percentage points, due to weak import growth. Nominal GDP growth accelerated to 8.2 percent (y/y) in Q2 from 7.8 percent in Q1.
High-frequency indicators suggest some strengthening in activity in June. Industrial value-added recovered to 6.3 percent (y/y) in June from 5.0 percent in May. Fixed asset investment growth picked up to 6.3 percent (y/y) in June from 4.3 percent in May. Total social financing growth increased to 10.9 percent (y/y) in June from 10.6 percent in May, driven by a slower contraction in shadow banking.
Headline CPI inflation remained at 2.7 percent (y/y) in June, with core CPI also steady at 1.6 percent (y/y); PPI inflation slowed to 0.0 percent (y/y).
3. Following the announcement in early July to accelerate financial sector opening, the Financial Stability and Development Committee announced eleven opening up measures. These improve foreign access to the bond market, asset management, insurance, securities, and ratings industries. Specifically, the measures will allow foreign financial institutions to: (1) rate domestic bonds; (2) establish and invest in wealth management subsidiaries of commercial banks; (3) establish controlling stakes in wealth management companies; (4) invest in pension management companies; (5) establish and participate in currency brokerage companies; (6) increase ownership in life insurance companies from 51 to 100 percent as of 2020 (advanced from 2021); (7) own more than 25 percent of the total shares of insurance asset management companies; (8) no longer be required to operate for over 30 years (for foreign-funded insurance companies); (9) own 100 percent of securities companies, fund management companies, and futures companies by 2020 (advanced from 2021); (10) obtain Class-A primary underwriting licenses in the interbank bond market; and (11) invest more easily in the interbank bond market.
4. Since the Staff Report was finalized on July 12th the RMB has been broadly stable, appreciating by 0.4 percent against the CFETS basket and depreciating by 0.1 percent against the US dollar; the equity market fell by ¼ percent; the 3-month central government bond yield rose by 15bps to 2.2 percent and the 5-year yield was essentially unchanged at 3.0 percent.