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Rate cut from December economic data

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The growth rate of industrial added value continued to pick up on a year-on-year basis.In December, the industrial added value increased by 4.3% year-on-year, 0.5 percentage points higher than the previous month. In terms of items, mining and manufacturing are the main drivers of industrial production. The mining industry grew by 7.3% year-on-year as domestic supply constraints continued to ease and demand for infrastructure investment increased. The high-tech manufacturing industry maintained a high growth rate, coupled with the recovery of the production scale of the automobile manufacturing industry, the added value of the manufacturing industry increased by 3.8% year-on-year.

Manufacturing investment was resilient, infrastructure investment rebounded significantly, and real estate indicators returned to decline.The price of raw materials in the upstream has fallen, and the prices of some industries in the middle and downstream have risen, and the investment in the manufacturing industry has been more resilient. The previous policy required infrastructure to form a physical workload as soon as possible at the end of last year and the beginning of this year. In addition, the issuance of special bonds has accelerated. After the economic work conference in December, infrastructure construction has made significant efforts. From a year-on-year perspective, broad infrastructure investment rebounded rapidly to 3.5% from -7.1% in the previous month. After a slight recovery in real estate indicators in November, it returned to a downward trend in December, indicating that policy easing has not been effective so far. In November, driven by the increase in lending speed in many places and the lowering of mortgage interest rates, real estate sales rebounded slightly. The decline in the area sold in the current period has expanded again. First, due to the concentrated release of real estate demand in November, the second is the rise in concerns about the completion of off-plan housing, and the weakening of expectations for rising house prices, leading some home buyers to choose to wait and see. Weak sales also kept other property data down.

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The multi-point outbreak of the epidemic once again dragged down the recovery of consumption.In December, the total retail sales of consumer goods increased by 1.7% year-on-year, down 2.2 percentage points from the previous month. From a structural point of view, the drag items of consumption in this period include: first, the epidemic affects offline consumption and travel; second, the post-cycle consumption of real estate is weak; third, the year-on-year growth rate of automobile consumption has declined due to the high base.

Rate cut from December economic data.The year-on-year growth rate of GDP in the fourth quarter was slightly higher than expected, mainly due to the high prosperity of industrial production and manufacturing investment. Both industrial production and manufacturing investment are closely related to the high prosperity of exports, which means that while my country’s economy is slowing down, it also has the characteristics of strong dependence on external demand. However, looking back, it is a high probability event that the export growth rate will drop in the future, which will have an impact on the industries that have benefited from the high export growth since last year. At the same time, real estate and consumption are weak, reflecting the increasing pressure on domestic demand. We speculate that the central bank’s interest rate cut on January 17 has three purposes: First, if residents’ expectations for real estate are unstable, it will be difficult for the real estate industry to reverse the sinking trend. After this rate cut, it is expected that the 1-year LPR and the 5-year LPR will be lowered accordingly on January 20 (this Thursday). This move is expected to boost real estate sales and investment, and promote the stable and healthy development of the real estate market. . Second, fiscal efforts in 2022 have become the consensus of the market. Fiscal easing requires the coordination of monetary easing to stabilize the capital cost of fiscal bond issuance; easing monetary policy also requires fiscal efforts to achieve the goal of easing credit. The third is that the Fed’s attitude has recently turned “eagle” and may raise interest rates as early as March 2022. Therefore, the central bank seized the window period of the first quarter to cut interest rates ahead of schedule.

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Risk factors:The mutation of the epidemic caused the vaccine to fail; domestic policies exceeded expectations, etc.

(The author is Xie Yunliang, chief macro analyst of Cinda Securities)

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