What to make of the latest round of Chinese data Such a lot of data has come out since Friday that we wanted to wrap it all here. The short version is, it's not great but not terrible either. Trade (all figures are year-on-year): Exports were up 9.9 per cent and imports were up 2.4 per cent in September. Nomura's Zhiwei Zhang points out this was mostly a surprise on the upside; consensus was for 5.5 per cent growth in exports, and the growth in imports was also healthy compared to the August figure of -2.6 per cent. The components of the import data show an interesting picture: "Processing and assembly" which is mostly items for re-export, performed much better (5.3 per cent growth) compared to "ordinary" imports for domestic consumption, which accelerated its decline from -1.2 per cent in August to -2.4 per cent in September. As Zhang writes, it suggests domestic demand continues to be weak. Further undermining the positive headlines from the trade data, Stephen Green from Standard Chartered finds the strong export growth are not so impressive, either. Green runs his own seasonal adjustment on the data to find it's sluggish for the pre-Christmas ordering period: However, there is a sizeable seasonal effect in September, likely related to Christmas exports. Thankfully, despite their difficulties, the Americans and Europeans still appear to be on track for celebrating in December. The picture looks less impressive in seasonally adjusted (SA) terms, though. In Figure 2, we plot the adjusted data against the Hodrick-Prescott (HP) filter, which indicates trend growth, and the message is clear: September exports were still below trend. They were not bad, and they are not getting worse, but they are still not enough to get excited about. Consumer price inflation came in at the consensus rate of 1.9 per cent for September, year-on-year, compared to 2 per cent the previous month. This was seen as giving the People's Bank of China more room to ease, but that's not the case, says Societe Generale's Wei Yao. She says food prices, which make up a big chunk of the Chinese CPI basket, are still problematic: The drop was almost entirely due to a normalisation of vegetable prices, which declined 5.6% mom in September after a surge of 14.3%mom in August. However, other food components continued to rise. Pork price inflation accelerated for a second month, up nearly 4% from the low touched in July. We noticed the import price of soybean rose 13.9% yoy in September, compared with 8.7% yoy in August and 3.3% yoy in July, which paved the way for a further rebound in domestic pork prices. In addition, non-food inflation advanced 1.7% yoy and 0.4% mom in September, from 1.4% yoy and 0.1% mom in August. The inflationary pressure was fairly broad-based, with six out of eight sub-categories recording positive mom changes. The National holiday was probably a factor. Hence, likely normalisation in non-food inflation may put downward pressure on October CPI but we expect more notable rebound to start in November. Producer prices continued to contract, with the year-on-year PPI for September -3.6 per cent, slightly more rapid than August's -3.5 per cent. However, as Nomura's Zhiwei points out, this is a slowdown from the average -0.6 month-on-month increase in the past four months. Monetary data: This was more of an unabashed success - September's year-on-year M2 growth was 14.8 per cent compared to 13.5 per cent in August. Zhiwei Zhang: Monetary growth also surprised on the upside in September. M2 growth rose sharply to 14.8% y-o-y from 13.5% in August (Consensus and Nomura: 13.7%), reaching its highest level since June 2011. M1 growth jumped to 7.5% from 4.5%, hitting its highest level thus far in 2012 (Figure 4). This is consistent with September's sharp rise in total social financing to RMB1.6trn from 1.2trn in August. International reserves climbed modestly to USD3.29trn in September from USD3.24trn in June, although the appreciation of the euro suggests that currency valuation effects were partly attributable. Loans data: Actual bank loans for September were disappointing, says Michael Werner of Bernstein Research, at Rmb621bn compared with Rmb704bn in August. However overall credit growth was strong: Total social financing for the month of September was strong at RMB 1.66 trillion, up 33% from August levels and 31% higher than the year-to-date monthly average. The September figure was driven by the typical quarter-end spike in bank acceptance bills but even excluding these instruments, total social financing was RMB 1.45 trillion, up 9% MoM and 21% above year-to-date average levels. Stephen Green at StanChart argues that the loans data look good on three fronts. First, he says, the growth medium- and long-term loans was Rmb470bn, the strongest since January 2011. Second, he says, in inflation-adjusted terms, the level of loan growth was a flourishing 17 per cent, year-on-year. And thirdly, the growth in non-bank credit was strong. That last point is a bit of a mixed bag, however. Corporate debt issuance and trust companies were the key drivers of growth, as this chart from Michael Werner shows: Growing corporate bond issuance indicates a healthy development of China's formal credit channels, which have traditionally been dominated by banks. Trust loans, however, are a different matter. They are issued by companies that extend loans or make equity investments, then combine them into fixed-income products. They promise a high rate of return but don't necessarily have the guarantees against default that many investors assume. However StanChart's Green sees the loan data as thoroughly positive, although his ending comments slightly take the edge off for some investors... (emphasis ours): One of the big worries that clients have is whether all of China's new infrastructure projects are getting financed. We know from speaking to commercial banks that the answer is, "some are." The latest money numbers support this view. It is not a "big bang" of financing, but it looks supportive nonetheless. This will not solve the economy's structural problems or make fears about non-performing loans go away. Some of this "new" lending may also be the result of interest owed being added to the capital of distressed loans, though we find it hard to believe that this has significant scale. Related links: China: Slowdown in growth likely to continue - FT China decline sparks "new normal" debate - FT