anz research greater china economic insight · greater china economic insight / 20 sep 2011 / 2 of...

GREATER CHINA ECONOMIC INSIGHT

20 SEPTEMBER 2011

INSIDE

Data Preview 2 Forecasts 3 Greater China Chartbooks 4 China 5 Taiwan 14 Hong Kong 21 Important Notice 26

CONTRIBUTORS

Li-Gang Liu Head of Greater China Economics +852 3929 5376 [email protected] Nicholas Zhu Head of Macro-Commodity Research, Asia +86 21 6169 6177 [email protected] Raymond Yeung Senior Economist, Greater China +852 3929 5480 [email protected] Hao Zhou Economist, China +86 21 6169 6348 [email protected] Louis Lam Analyst, Greater China +852 2843 7245 [email protected]

ANZ RESEARCH

DATA PREVIEW

With concerns of a slowdown in activities amid a weakening global outlook, the focus over the next seven days will be on China’s HSBC Flash PMI; Hong Kong’s August CPI reading; and Taiwan’s August unemployment rate and industrial production - a poor print for both will reinforce our belief that the CBC will temporarily adopt a dovish stance.

GREATER CHINA ECONOMIC CHARTBOOK

This week’s Insight includes the monthly chartbook for Greater China which provides an overview of economic indicators for mainland China, Taiwan and Hong Kong.

CHART OF THE WEEK

ANZ ACTIVITY INDEX The ANZ China Activity Index suggests that real activities have remained robust. As such, we expect China will post strong Q3 GDP growth figures on 18 October.

China - ANZ Activity Index

90

95

100

105

110

115

120

125

00 01 02 03 04 05 06 07 08 09 10 113

5

7

9

11

13

15

ANZ China Activity Index GDP, y/y (RHS)

Sources: CEIC, ANZ Research

Greater China Economic Insight / 20 Sep 2011 / 2 of 27

DATA PREVIEW

GREATER CHINA ECONOMIC DATA CALENDAR

With concerns of a slowdown in activities amid a weakening global outlook, the focus over the next seven days will be on China’s HSBC Flash PMI; unemployment rates for Hong Kong (ANZ: 3.4%) and Taiwan (ANZ: 4.35%); Hong Kong’s August CPI reading (ANZ: 6.4%); and Taiwan’s industrial production numbers (ANZ: 4.4%). A poor print for Taiwan's industrial production and job figures will reinforce our belief that the CBC will temporarily adopt a dovish stance.

DATE COUNTRY DATA/EVENT PERIOD CONSENSUS LAST TIME (HK/SG)20 Sep Taiwan Export Orders (y/y) Aug 7.0% 11.1% 16:0020 Sep Hong Kong Unemployment Rate SA Aug 3.5% 3.4% 16:30

21 Sep China Conference Board Leading Index Jul - - - - 10:00

22 Sep China HSBC Flash China PMI Sep - - 49.9 10:3022 Sep Taiwan Unemployment Rate SA Aug 4.4% 4.4% 16:0022 Sep Hong Kong Current Account Balance Q2 - - $37.32B 16:3022 Sep Hong Kong Overall Balance of Payments Q2 - - $18.69B 16:3022 Sep Hong Kong CPI (y/y) Aug 5.8% 7.9% 16:30

23 Sep China MNI Flash Business Sentiment Survey Sep - - - - 9:3523 Sep Taiwan Commercial Sales (y/y) Aug 4.9% 4.6% 16:0023 Sep Taiwan Industrial Production (y/y) Aug 4.1% 3.9% 16:00

26 Sep Taiwan Money Supply M1B Daily Avg (y/y) Aug - - 7.6% 16:2026 Sep Taiwan Money Supply M2 Daily Avg (y/y) Aug - - 6.2% 16:20

27 Sep China Industrial Profits YTD (y/y) Aug - - 28.3% 10:0027 Sep Taiwan Coincident Index (m/m) Aug - - -0.2% 16:0027 Sep Taiwan Leading Index (m/m) Aug - - 0.04% 16:0027 Sep Hong Kong Exports (y/y) Aug - - 9.30% 16:3027 Sep Hong Kong Imports (y/y) Aug - - 10.20% 16:3027 Sep Hong Kong Trade Balance (HKD) Aug - - -$35.9B 16:30


MONTHLY CHARTBOOK

y/y, unless otherwise notedSep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 2011 2012

Real GDP China 9.6 9.8 9.7 9.5 9.6 9.5 9.6 9.3 Taiwan 10.7 7.1 6.2 5.0 4.1 4.7 5.0 3.9 Hong Kong 6.9 6.4 7.5 5.1 3.8 3.2 4.8 4.3

Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11Consumer Price Index China 5.4 5.3 5.5 6.4 6.5 6.2* 6.1 5.6 Taiwan 1.4 1.3 1.7 1.9 1.3 1.3* 1.4 1.1 Hong Kong 4.4 4.6 5.3 5.6 7.9 6.4 6.5 6.2Producer Price Index China 7.3 6.8 6.8 7.1 7.5 7.3* - - - -Unemployment Rate, % Taiwan 4.5 4.3 4.3 4.4 4.4 4.4 4.3 4.3 Hong Kong 3.4 3.5 3.5 3.5 3.4 3.4 3.4 3.3Exports China 35.8 29.8 19.3 17.9 20.3 24.5* 17.8 14.1 Taiwan 16.6 24.6 9.4 10.8 17.6 7.2* 11.4 10.4 Hong Kong 21.5 4.1 10.1 9.2 9.3 6.5 5.6 8.3Imports China 27.4 22.0 28.4 19.0 23.0 30.2* 20.0 18.6 Taiwan 16.7 25.7 19.4 12.5 14.0 6.4* 10.8 14.3 Hong Kong 18.8 6.1 13.0 11.5 10.2 15.1 9.3 12.8Trade Balance China, USD bn 0.1 11.4 13.0 22.3 31.5 17.8* 17.1 26.0 Taiwan, USD bn 1.7 2.9 1.2 1.4 3.3 2.6* 2.1 2.5 Hong Kong, HKD bn -40.1 -42.4 -35.7 -40.3 -35.9 -38.8 -37.1 -37.3PMI and Export Orders China Manufacturing PMI 53.4 52.9 52.0 50.9 50.7 50.9* 51.3 51.7 Taiwan Export Orders 13.4 10.2 11.5 9.2 11.1 7.6 4.2 5.3Industrial Production China 14.8 13.4 13.3 15.1 14.0 14.2* 13.8 13.7 Taiwan 13.7 7.2 7.6 3.8 3.9 4.4 8.0 6.0Electricity Production China 12.1 12.9 11.7 12.0 12.7 12.0* - - - -Retail Sales China 17.4 17.1 16.9 17.7 17.2 17.0* 17.5 17.5 Taiwan (Commercial Sales) 7.7 4.9 4.2 5.3 4.6 4.5 5.5 3.8 Hong Kong 26.1 27.7 27.9 28.7 29.1 28.5 31.7 25.6M1 Growth China 15.0 12.9 12.7 13.1 11.6 11.2* - - - - Taiwan (M1 B) 9.2 8.2 8.0 8.1 7.6 - - - - - - Hong Kong 4.6 2.2 12.5 12.5 15.5 - - - - - -M2 Growth China 16.6 15.3 15.1 15.9 14.7 13.5* - - - - Taiwan 6.0 5.9 6.1 6.0 6.2 - - - - - - Hong Kong 7.4 6.1 11.5 8.4 9.4 - - - - - -

2005 2006 2007 2008 2009 2010 2011Current Account, % of GDP China 5.9 8.6 10.1 9.1 5.2 5.2 4.8 Taiwan 4.8 7.0 8.9 6.9 11.4 9.3 8.4 Hong Kong 11.4 12.1 12.3 13.7 8.6 6.2 13.0Foreign Reserves, USD bn China 819 1,066 1,528 1,946 2,399 2,847 3197* Taiwan 253 266 270 292 348 382 400* Hong Kong 124 133 153 183 256 269 279*Government Fiscal Surplus/Deficit, % of GDP China -1.2 -1.0 0.2 -0.8 -2.8 -1.7 -2.3 Taiwan -0.1 0.1 0.3 -0.5 -3.5 -3.1 -2.1 Hong Kong (FY ending in March) 1.0 3.9 7.5 0.1 1.6 4.2 0.2

Forecasts



MONTHLY CHARTBOOK

GREATER CHINA

• China’s export and import growth were both healthy in August, suggesting the economy is on track to achieve its growth target despite a global slowdown. Notably, imports accelerated, led by iron ore (+32.4% y/y), indicating that domestic demand has maintained a strong growth momentum.

• China’s August CPI stayed above the authorities’ target. As sequential growth remained upbeat, it is too early to say that inflationary pressures have eased. As such, it would be premature for the PBoC to loosen monetary policy.

• A slowdown in money supply has not resulted in lower inflation. According to the PBoC, a shift in term deposits from the banking to the non-banking sector has boosted the “unrecorded” money supply. This shift strengthens the case for the central bank to narrow negative real interest rates by gradually raising the policy rate.

• In contrast, Taiwan inflation remain subdued at 1.3% in August and was accompanied by worrisome trade figures that showed a sharp drop in export growth to 7.2% from July’s 17.6% gain. As growth becomes an increasing concern, we think the CBC will temporarily adopt a dovish stance which will see the policy rate held at 1.875% in September and TWD continue to weaken.

• Hong Kong’s August inflation reading is due next week and is expected to stay high at 6.4%. Under the linked exchange rate regime, local prices closely follow international price movements, therefore we expect the government will pledge additional relief measures to the population segment most impacted by inflation.

China - Contributions to Inflation (y/y)

-3

-2

-1

0

1

2

3

4

5

6

7

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Food Housing Medical Other CPI

New Weights

China - M2 and Credit

10

15

20

25

30

35

40

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

M2, y/y Credit, y/y

Taiwan - Trade Developments

-80

-40

0

40

80

120

160

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-2

-1

0

1

2

3

4

Trade Balance, $bn (RHS) Exports, y/y Imports, y/y

Hong Kong - CPI and CNY

-4

-2

0

2

4

6

8

10

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

1.12

1.13

1.14

1.15

1.16

1.17

1.18

1.19

1.20

1.21

1.22

CPI, y/y HKD/CNY



CHINA

REAL ACTIVITY: ACTIVITIES REMAINED ROBUST, A HARD LANDING NOW UNLIKELY

• Industrial production grew 13.5% y/y in August, down from July’s 14.0% gain, and lower than market expectations. Retail sales gained 17.0%, 0.2 ppt lower than the previous month. Fixed asset investment registered growth of 25.0% in the first eight months of the year, down from the last reading of 25.4%.

• Although activities were weaker than market expectations, the overall economy remains steady as all the activity indicators were within the normal range.

China - Industrial Production(y/y)

0

5

10

15

20

25

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Overall Light Industry Heavy Industry

China - Electricity Production(y/y, 3mma)

-10

-5

0

5

10

15

20

25

30

35

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Industrial value added Electricity production

China - PMI

35

40

45

50

55

60

65

2005 2006 2007 2008 2009 2010 2011

Official PMI HSBC PMI

China - PMI Breakdown

25

30

35

40

45

50

55

60

65

Aug08

Nov08

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

New Orders New Export Orders

China - Retail Sales(y/y)

5

10

15

20

25

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Nominal Real

China - Housing and Auto Sales(y/y)

-40

-20

0

20

40

60

80

100

120

140

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Auto Sales Housing Sales



CHINA

EXTERNAL TRADE: IMPORTS SURPRISED ON THE UPSIDE

• Exports rose 24.5% y/y in August, up from July’s 20.4%, and higher than the market expectation of 21.9%. Exports to the US and EU quickened to 12.5% and 22.3%, respectively.

• Imports surprised on the upside by a large margin, gaining 30.2% y/y in August, higher than the previous month’s 22.9% gain and the market consensus of 21.0%. Imports of crude oil and iron ore rose significantly from the previous month, while soybean imports declined.

• As imports rose much faster than exports, the trade surplus narrowed to $17.7bn from July’s $31.5bn.

China - Trade Developments

-60

-40

-20

0

20

40

60

80

100

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-30

-20

-10

0

10

20

30

40

50


China - Imports of Key Commodities(y/y, 3mma)

-100

-50

0

50

100

150

200

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Soybean Iron Ore and ConcentratesCrude Petroleum Oil

China - Exports by Destination(y/y, 3mma)

-40

-30

-20

-10

0

10

20

30

40

50

60

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

US EU NIE ASEAN

China - Imports by Origin(y/y, 3mma)

-60

-40

-20

0

20

40

60

80

100

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

US EU NIE ASEAN

China - Trade Balance($bn 12m rolling sum)

100

120

140

160

180

200

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-70

-60

-50

-40

-30

-20

-10

0

EU US Japan (RHS)

China - Trade Balance($bn 12m rolling sum)

-180

-160

-140

-120

-100

-80

-60

-40

-20

0

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

ASEAN-5 AU+NZ NIE ex HK



CHINA

PRICES: INFLATION PRESSURES HAVE NOT EASED

• CPI inflation remains high at 6.2% y/y in August, but down from 6.5% previously, and was in line with market expectations. Inflation was driven by food and dwelling costs. On a m/m basis, CPI rose 0.3% in August, suggesting a strong momentum. As sequential growth remains upbeat, it is too early to say that inflationary pressures have eased.

• PPI rose 7.3% y/y in August, higher than the market consensus of 7.2%, and down from July’s 7.5%.

China - Inflation (y/y)

-10

-8

-6

-4

-2

0

2

4

6

8

10

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

CPI PPI

China - Contributions to Inflation (y/y)

-3

-2

-1

0

1

2

3

4

5

6

7

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Food Housing Medical Other CPI

New Weights

China - CPI Inflation

-4

-2

0

2

4

6

8

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-1

0

1

2

m/m (RHS) y/y

China - PPI Inflation

-15

-10

-5

0

5

10

15

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-2

-1

0

1

2

m/m (RHS) y/y

China - Real Interest Rate

-4

-2

0

2

4

6

8

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

CPI, y/y Deposit Rate Real Interest Rate

China - Inflation Expectation

0

10

20

30

40

50

60

70

80

90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Current Price Satisfaction IndexFuture Price Expectation Index

Sources: CEIC, ANZ Economic


CHINA

MONETARY POLICY: THE PBOC NOTES THE “LEAKED” EFFECT IN MONEY SUPPLY

• While new yuan loans exceeded market expectations, M2 growth trended down to 13.5% y/y in August, the lowest rate seen in the past five years.

• However, slowing money supply has not led to lower inflation. The PBoC reports that a large quantity of term deposits have shifted from the banking to non-banking sector, increasing the “unrecorded” money supply in the economy.

China - M2 and Credit

10

15

20

25

30

35

40

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

M2, y/y Credit, y/y

China - New Lending(RMB, bn)

-500

0

500

1,000

1,500

2,000

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Medium and Long-term Short-term

China - PBoC 7-day Repo Rate

0

1

2

3

4

5

6

7

8

9

10

Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11

China - Spread between CHIBOR and LIBOR(monthly average)

-600

-400

-200

0

200

400

600

800

2005 2006 2007 2008 2009 2010 2011

1 month 3 month

China - PBoC 1-year Lending Rate

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2005 2006 2007 2008 2009 2010 2011

China - Reserve Requirement Ratio

4

6

8

10

12

14

16

18

20

22

24

2005 2006 2007 2008 2009 2010 2011

Sources: Bloomberg, CEIC, PBoC, ANZ Economic


CHINA

EXCHANGE RATE: APPRECIATION OF THE RMB ACCELERATED IN AUGUST

• CNY strengthened by 0.9% versus USD in August, compared with this year’s average monthly pace of 0.54%, and has raised the market’s interest.

• We think that CNY is likely to outperform against non-USD currencies for the reminder of this year despite rising global financial market volatilities. We maintain our view that CNY will strengthen by 5% against USD in 2011, leading to a year-end rate of 6.28-6.30.

China - RMB Spot Rate

6.30

6.35

6.40

6.45

6.50

6.55

6.60

6.65

6.70

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Aug11

Sep11

China - Exchange Rate

6.2

6.3

6.4

6.5

6.6

6.7

6.8

6.9

7.0

Jan10

Mar10

May10

Jul10

Sep10

Nov10

Jan11

Mar11

May11

Jul11

Sep11

Spot 3m NDF 6m NDF 1y NDF

China - Effective Exchange Rates(2005=100)

90

95

100

105

110

115

120

125

130

2005 2006 2007 2008 2009 2010 2011

REER NEER

China - Exchange Rate and Interest Rate

6.0

6.5

7.0

7.5

8.0

8.5

2005 2006 2007 2008 2009 2010 2011 20123.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

USDCNY Spot PBoC 1-year Lending Rate (RHS)

Forecast

China - FX Reserves(USD, bn)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

China- Sterilisation(CNY, bn)

-1,000-800

-600-400

-2000

200400

600800

1,000

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

2,500

3,000

3,500

4,000

4,500

5,000

CB Bills Issuance Maturing CB BillsCB Bills Outstanding (RHS)

Sources: Bloomberg, CEIC, ANZ Research


CHINA

COMMODITY PRICES: COMMODITY IMPORT PRICES DOWN FROM AN HISTORICAL HIGH

• China’s commodity import prices declined in August from the historical high recorded in July. However, we think global commodity prices are likely to pick up again if G3 monetary policies remain extremely loose.

• While major metal prices declined, steel prices remained stable, reflecting robust onshore fixed asset investment.

ANZ Commodity Import Price Index (2003=100)

0

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008 2009 2010 2011

ANZ Commodity Import Price Index (2003=100)

0

50

100

150

200

250

300

350

400

450

2003 2004 2005 2006 2007 2008 2009 2010 2011

Hard Commodity Index Agricultural Goods Index

China - Commodity Price Indices(2003=100)

0

100

200

300

400

500

2003 2004 2005 2006 2007 2008 2009 2010 20110

40

80

120

160

200

Copper Coal Aluminium (RHS)

China - Commodity Futures Prices(th RMB/ton)

0

5

10

15

20

25

30

35

40

2005 2006 2007 2008 2009 2010 20110

20

40

60

80

100

Aluminium Zinc Copper (RHS)

China - Steel Product Prices (th RMB/ton)

0

1

2

3

4

5

6

7

8

9

10

2005 2006 2007 2008 2009 2010 2011Rebar Hot Rolled SheetSteel Plate Cold Rolled Sheet

China - Steel Futures(RMB/ton)

3,500

3,800

4,100

4,400

4,700

5,000

5,300

Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11

Rebar Wire Rod



CHINA

COMMODITY IMPORTS: STARTING TO PICK UP

• Most major commodity imports have started to pick up, as we expected. A recent pullback in global commodity prices has increased demand from Chinese producers.

• Notably, iron ore imports rose by 10% m/m to a five-month high in August.

China - Copper Production and Imports(y/y, 3mma)

-15

-10

-5

0

5

10

15

20

25

30

Jul08

Oct08

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

-100

-50

0

50

100

150

200

Production Imports (RHS)

China - Aluminium Production and Imports (y/y, 3mma)

-60

-40

-20

0

20

40

60

80

100

120

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Production Imports

China - Iron Ore Production and Imports(y/y, 3mma)

-20

-10

0

10

20

30

40

50

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-40

-20

0

20

40

60

80

100

120


China - Coal Production and Imports(y/y, 3mma)

-10

0

10

20

30

40

50

60

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

-100

0

100

200

300

400

500

600


China - Energy Imports(y/y, 3mma)

-100

-50

0

50

100

150

200

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-100

0

100

200

300

400

Crude Oil LNG (RHS)

China - Energy Production(y/y, 3mma)

-5

0

5

10

15

20

25

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Natural Gas Gasoline



CHINA

WHITE GOODS/CAR PRODUCTION: UPWARD TREND CONTINUES

• Automobile production picked up in August, gaining 9.5% y/y, versus a 1.3% contraction in July.

• Conversely, production growth of household durables remained upbeat, reflecting strong underlying potential growth on the demand side. As the economy shifts to being more domestic-demand driven, production of white goods will be supported despite weakening demand from abroad.

China - Automobile Production

-40

-20

0

20

40

60

80

100

120

140

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y

China - Refrigerator Production

-30

-20

-10

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y

China - Air Conditioner Production

-40

-20

0

20

40

60

80

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y

China - Washing Machine Production

-20

-10

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y

China - TV Production

-30

-20

-10

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y

China - Computer Production

-40

-20

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010 2011

y/y, 6mma y/y



CHINA

STEEL INDUSTRY: IRON ORE PRICES ROBUST

• Production of steel products has remained high in the past months, and steel mills have continued to report decent profits.

• Iron ore inventory continued to build, and prices remained robust despite a fallback in global commodity prices. Due to high iron ore costs, steel mills will reportedly raise prices in September.

• Steel inventories held by traders declined.

China - Steel Products(mn tons)

-10

0

10

20

30

40

50

60

70

80

Nov08

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

-1

0

1

2

3

4

5

6

7

8

Domestic Production Net Exports (RHS)

China - Large and Medium Steel Enterprises Profits (CNYbn)

-3

0

3

6

9

12

15

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

China - Domestic Demand of Imported Ore (mn tons)

0

10

20

30

40

50

60

70

Jul08

Oct08

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

*Defined as monthly imports less monthly change of inventories

Average

China - Iron Ore Prices(RMB/ton)

0

200

400

600

800

1,000

1,200

1,400

1,600

Aug08

Nov08

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Import Price Domestic Price

China - Iron Ore Inventory (mn tons)

50

55

60

65

70

75

80

85

90

95

100

Jun08

Sep08

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

Sep11

China - Steel Inventories Held By Traders(mn tons)

2

3

4

5

6

7

8

9

10

Jul08

Oct08

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11



TAIWAN

REAL ACTIVITIES: INDUSTRIAL PRODUCTION MODERATED

• Taiwan’s commercial sales grew 4.61% in July, compared with a 5.25% gain in June. Retail and wholesale sales increased 5.47% and 4.15%, respectively, compared with 6.24% and 4.80% in the previous month.

• However, industrial production moderated to 3.93% in July, reflecting downtime at the Formosa petrochemical plants. We expect production to rebound slightly to 5.39% in August.

Taiwan - Real GDP Growth

-25

-20

-15

-10

-5

0

5

10

15

20

25

Sep08

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

y/y q/q, saar

Taiwan - Contributions to GDP Growth(ppt)

-15

-10

-5

0

5

10

15

Sep08

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

-15

-10

-5

0

5

10

15

Private Consumption Government ConsumptionInvestment Change in StocksNet Exports y/y (RHS)

Taiwan - GDP by industry(4 quarters to Q2 2011)

26%

19%

9%7%

7%

5%

4%

23%

Manufacturing

Wholesale and RetailTradeReal Estate

Public Administrationand DefenceFinance andInsuranceEducation

Information &CommunicationsOthers

Taiwan - Commercial Sales (y/y)

-30

-20

-10

0

10

20

30

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Commercial Sales Wholesale Trade Retail Trade

Taiwan - Industrial Production Index

-60

-40

-20

0

20

40

60

80

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

0

20

40

60

80

100

120

140

160

y/y Index (RHS)

Taiwan - Industrial Production of Top Four Sectors (y/y)

-50-30

-1010

3050

7090

110130

150

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Electronic Parts Basic MetalChemical Materials Computers & Electronics



TAIWAN

EXTERNAL TRADE: EXPORTS DISAPPOINTED

• Exports slowed to 7.2% y/y in August following a strong 17.6% in July as global demand weakened. Exports to mainland China and Hong Kong moderated to 8.4% from 15.1%, respectively. Exports to the US slowed sharply to 6.2% from 22.5%, while exports to Europe remained weak at 6.2%. Notably, shipments to Japan contracted 9.3%, from a 3.4% gain in July, reflecting the lingering impact of the Tohoku earthquake.

• Imports also slowed to 6.4% in August, from July’s 14.0%. Imports from the US, Japan and Europe contracted 4.2%, 5.9% and 0.6%, respectively. However, intra-regional imports were robust as imports from mainland China and Hong Kong combined rose 20.5%, and imports from the ASEAN-6 rose 14.7%.

Taiwan - Trade Developments

-80

-40

0

40

80

120

160

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-2

-1

0

1

2

3

4


Taiwan - Export Orders

-60

-40

-20

0

20

40

60

80

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

y/y Export Orders in USD

Taiwan - Exports Comparison with South Korea(y/y)

-60

-40

-20

0

20

40

60

80

100

Oct08

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Taiwan South Korea

Taiwan - Exports in TWD terms

-60

-40

-20

0

20

40

60

80

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

-15

-10

-5

0

5

10

15

20

Difference - TWD-USD (RHS) Exports, US$ y/yExports, TWD y/y

Taiwan - Exports by Destination(y/y)

-100

-50

0

50

100

150

200

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Asia ex Mainland & HK HK Mainland Europe US

Taiwan - Imports by Origin(y/y)

-100

-50

0

50

100

150

200

250

300

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Asia ex Mainland & HK HK Mainland Europe US



TAIWAN

PRICES: INFLATION REMAINS BENIGN

• Headline CPI was unchanged at 1.33% y/y in August as favourable weather helped to stabilise food prices. Meanwhile, on the wholesale level, WPI eased to 3.85% August, compared with a 4.02% gain in July.

• Taiwan’s strong currency against the USD continues to help contain imported inflation. The import price index in USD-terms rose 17.23% in August, while the index in TWD-terms only increased 6.41%.

Taiwan - CPI

-8

-6

-4

-2

0

2

4

6

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

y/y 3m/3m saar

Taiwan - Contribution to CPI Inflation

0.0

0.5

1.0

1.5

2.0

2.5

Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11

Food RentalHousing ex. Rental TransportationEducation & Entertainment OtherCPI, y/y

Taiwan - Headline and Core CPI

-3

-2

-1

0

1

2

3

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

CPICPI ex Food & EnergyCPI ex Fruits, Vegetables, Fish, Shellfish & Energy

Taiwan - Money Supply and Inflation(y/y)

-2

0

2

4

6

8

10

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

CPI excl. fruits, vegetables, fish, shellfish & energyM2 Growth

Taiwan - WPI

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

y/y 3m/3m saar

Taiwan - Import Price Index(y/y)

-25-20-15-10-50

510152025

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

ImPI in TWD ImPI in USD



TAIWAN

MONETARY AND RATE POLICIES: TIGHTENING SET TO PAUSE ON WEAKER GLOBAL OUTLOOK

• On the back of a weaker global economic outlook and low inflation, the central bank may opt to pause its monetary tightening stance by keeping the interest rate on hold at 1.875% at its 29 September meeting.

Taiwan - Money Supply (y/y)

0

5

10

15

20

25

30

35

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

M1b M2

Taiwan - Interest Rate

0

1

2

3

4

5

Aug06

Feb07

Aug07

Feb08

Aug08

Feb09

Aug09

Feb10

Aug10

Feb11

Aug11

Rediscount Rate 3m TAIBOR10y Gov't Bond Yield 5-Leading Banks Base Rate

Taiwan - TWD Exchange Rates

80

82

84

86

88

90

92

94

96

98

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

26

27

28

29

30

31

32

33

34

BIS NEER BIS REER TWD/USD Spot (RHS, inverted)

Taiwan - USDTWD vs USDKRW(One year rolling index)

85

87

89

91

93

95

97

99

101

103

Aug 10 Oct 10 Dec 10 Feb 11 Apr 11 Jun 11 Aug 11

TWDUSD KRWUSD

Taiwan - Loans and Deposits

-5

0

5

10

15

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

75

76

77

78

79

80

81

82

83

84

Deposits, y/y Loans, y/y Loan-Deposit Ratio % (RHS)

Taiwan - Real Estate Loans

-40

-20

0

20

40

60

80

100

120

140

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

39.0

39.5

40.0

40.5

41.0

41.5

42.0

42.5

Real Estate Loan, TWD bnRE Loan as % of Banks' Loan Book (RHS)



TAIWAN

LABOUR MARKET: THE UNEMPLOYMENT RATE REMAINED FLAT

• The jobless rate remained low at 4.37% sa in July, compared with 4.40% in June. We expect unemployment will have remained flat at 4.35% in August.

Taiwan - Unemployment Rate

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Unemployment rate, sa Unemployment rate, 3mma

Taiwan - Unemployment by Sector(July 2011, person thousand, share of total)

112, 29%

42, 11%

57, 15%41, 10%

21, 5%

118, 30%

Manufacturing

Construction

Wholesale & RetailTradeAccomodations &Food ServicesEducation

Other

Taiwan - GDP vs Disposable Income(1990=100)

100

120

140

160

180

200

220

240

260

280

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

GDP per Capita Household Disposable IncomeHousehold Consumption

Taiwan - Employment by Sector(Jul 2011, person thousand, share of total)

2,967, 28%

833, 8%

627, 6%

3,820, 35%

1,770, 16%735, 7%

Manufacturing

Construction

Wholesale & RetailTradeAccommodation &Food ServicesEducation

Other



TAIWAN

FINANCE AND PROPERTY: TAIEX INDEX DROPPED AMID GLOBAL MARKET VOLATILITY

• The luxury tax on real estate is now in place. Although property prices in Taipei city rose by 8.8% y/y in July, the number of transactions dropped from 6494 in June to 5546 in July.

• The TAIEX index dropped to below 7,200 in September. Also in September, we saw major net foreign equity outflow amid the volatile market.

Taiwan - Equity Market

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

0

20

40

60

80

100

120

140

TAIEX Weighted Index P/E Ratio (RHS)

Taiwan - Bond Market Net Issuance(TWD bn)

-100

-50

0

50

100

150

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Government Bond Corporate Bond

Taiwan - Property Price Index (y/y)

-15

-10

-5

0

5

10

15

20

25

30

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Taipei C ity Taipei County GDP y/y (RHS)

Taiwan - Property Transaction and Stock Market Index

0

2,000

4,000

6,000

8,000

10,000

12,000

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

0

2,000

4,000

6,000

8,000

10,000

12,000

No. of Building Ownership Transfer (Taipei)TAIEX Weighted Index (RHS)

Taiwan - Housing Affordability Ratios

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

2005 2006 2007 2008 2009 2010 201125

27

29

31

33

35

37

Housing Price to Income Ratio (times)Housing Loan Payment to Income Ratio, % (RHS)

Taiwan - Lending Rate and Property Price

60

70

80

90

100

110

120

130

140

1995 1997 1999 2001 2003 2005 2007 2009 2011-2

0

2

4

6

8

10

Property Price Index - TaipeiNominal Lending Rate, % (RHS)CPI Rental, 3mma % (RHS)



TAIWAN

CROSS-STRAIT ECONOMIC ACTIVITY: TRADE WITH MAINLAND SLOWED IN AUGUST

• Exports to mainland China rose by 7.86% y/y and imports rose by 20.8% in August, down from the previous month’s 14.8% and 29.6%, respectively. The trade surplus with the Mainland narrowed to $3.33bn from $3.67bn. Exports to Hong Kong also grew 9.4% in August.

Taiwan - Trades with Mainland China

0

10

20

30

40

50

60

Jun10

Aug10

Oct10

Dec10

Feb11

Apr11

Jun11

Aug11

0

1

2

3

4


Taiwan - Trades with Hong Kong

-10

0

10

20

30

40

50

60

70

80

Jun10

Aug10

Oct10

Dec10

Feb11

Apr11

Jun11

Aug11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


Taiwan - Visitor arrivals from Mainland China

0

50

100

150

200

250

Jun10

Aug10

Oct10

Dec10

Feb11

Apr11

Jun11

Aug11

0

5

10

15

20

25

30

35

40

Share of all visitors, % (RHS) Persons, th

Taiwan - Outbound Investment in the Mainland(US$ mn)

0

500

1,000

1,500

2,000

2,500

3,000

May10

Jul10

Sep10

Nov10

Jan11

Mar11

May11

Jul11

MOEA's Approved Amount



HONG KONG

REAL ACTIVITY: INDICATORS POSED A MIXED PICTURE IN JULY

• Retail sales grew 29.1% y/y in July, 0.3ppt above June’s results, driven by strong tourist inflow and a low unemployment rate. Sales volume increased 22.4%, from 22.2%, previously.

• Construction activity growth slowed to 4% y/y in Q2, compared with 19.3% in Q1. Private construction sites contracted 8.5% in Q2, in stark contrast with the 18.6% gain in Q1.

• Container throughputs by sea edged up to 3.2% y/y in August, compared with 2.8% in July. Meanwhile, air cargo volumes prolonged its weakness and declined by 7.8%.

Hong Kong - GDP

-15

-10

-5

0

5

10

15

20

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

y/y q/q, saar

Hong Kong - Contributions to GDP Growth (ppt)

-10

-5

0

5

10

15

20

Dec08

Mar09

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

-10

-5

0

5

10

15

20

Private Consumption Government ConsumptionInvestment Changes in InventoriesNet Exports Total, y/y

Hong Kong - Retail Sales (y/y)

-20

-10

0

10

20

30

40

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Value Volume

Hong Kong - Retail Sales Components(y/y)

-60

-40

-20

0

20

40

60

80

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Clothing & Footwear Motor VehiclesJewellery, Watches & Clocks

Hong Kong - Construction Output Value(y/y)

-40

-20

0

20

40

60

80

100

120

Jun07

Oct07

Feb08

Jun08

Oct08

Feb09

Jun09

Oct09

Feb10

Jun10

Oct10

Feb11

Jun11

Total Private Sector SitesPublic Sector Sites Non-construction Sites

Hong Kong - Logistics Activities(y/y)

-20

-10

0

10

20

30

40

50

Oct09

Dec09

Feb10

Apr10

Jun10

Aug10

Oct10

Dec10

Feb11

Apr11

Jun11

Aug11

Container Throughput (Sea) Passenger Movement (Air)Airport Cargo Movement



HONG KONG

EXTERNAL SECTOR: EXTERNAL DEMAND FROM THE US CONTRACTED

• July exports grew 9.3% y/y, roughly unchanged from the previous month as global uncertainties continued to weigh on external demand. Imports increased 10.2% in July, down from 11.5% in June. The total trade balance narrowed to HK$35.9bn.

• Exports to China grew 4.8% in July, from 6.0% in June. Exports to the US contracted 3.7% but exports to the EU rose by 11.5% compared with June’s gain of 7.5%.

Hong Kong - Trade Developments

-50

-40

-30-20

-10

0

10

2030

40

50

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Trade Balance, HKD bn Exports, y/y Imports, y/y

Hong Kong - Exports by Destination(y/y)

-50-40-30-20-10

0102030405060

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

US EU NIE ASEAN China

Hong Kong - Regional Contributions to Export Growth

(ppt)

-5

0

5

10

15

20

25

30

35

40

Aug10

Sep10

Oct10

Nov10

Dec10

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

ASEAN EU US ChinaJapan NIEs Other Total, y/y

Hong Kong - Regional Contributions to Import Growth

(ppt)

-5

0

5

10

15

20

25

30

35

Aug10

Sep10

Oct10

Nov10

Dec10

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

ASEAN EU US ChinaJapan NIEs Other Total, y/y

Hong Kong - Exports by Destination(12 months to July 2011)

HK$1,997 bn, 53%

HK$397 bn, 10%

HK$591 bn, 16%

HK$421 bn, 11%

HK$154 bn, 4%

HK$245 bn, 6%

China

US

EU

Japan

ASEAN

Other

Hong Kong - Imports by Origin(12 months to July 2011)

HK$1,920 bn, 45%

HK$797 bn, 19%

HK$582 bn, 14%

HK$370 bn, 9%

HK$327 bn, 8%

HK$229 bn, 5%

China

ASEAN

Japan

EU

US

Other



HONG KONG

PRICES: INFLATIONARY PRESSURES CONTINUE TO RISE

• Headline CPI surged 7.9% y/y in July, mainly due to a low base resulting from rental subsidies. However, stripping out the effect of the government’s relief measures, CPI still rose 5.8% in July, 0.3ppt higher than June’s reading, driven by higher food and rental costs.

• Headline CPI will start to moderate as the impact of housing subsidies will have started to kick-in. However, underlying inflation will remain elevated on accommodative US monetary policy and higher local wages.

Hong Kong - Inflation

-10

-5

0

5

10

15

20

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Headline, y/y Excl. Gov't Relief, y/yHeadline, 3m/3m saar

Hong Kong - Contribution to Inflation

-3

-1

1

3

5

7

9

Aug10

Sep10

Oct10

Nov10

Dec10

Jan11

Feb11

Mar11

Apr11

May11

Jun11

Jul11

Food Housing Electricity, Gas & Water TransportMisc services Othersy/y

Hong Kong - Inflation (y/y)

-15

-10

-5

0

5

10

15

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

-80

-60

-40

-20

0

20

40

60

80

Food HousingTransport Elect., Gas & Water (RHS)

Hong Kong - CPI and CNY

-4

-2

0

2

4

6

8

10

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

1.12

1.13

1.14

1.15

1.16

1.17

1.18

1.19

1.20

1.21

1.22

CPI, y/y HKD/CNY

Hong Kong - CPI and Liquidity

0

2

4

6

8

10

12

14

16

18

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010-8

-4

0

4

8

12

16

3m HIBOR CPI, y/y (RHS)

Hong Kong - CPI and Unemployment Rate

-5

0

5

10

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

3.0

3.5

4.0

4.5

5.0

5.5

6.0

CPI, y/y Unemployment Rate, sa (RHS)



HONG KONG

MONEY, BANKING AND THE EXCHANGE RATE: STRONG DEMAND FROM OVERSEAS BORROWERS

• Deposits in Hong Kong rose 2.0% m/m in July, after shrinking 0.9% in June. Hong Kong-dollar deposits rose 2.1%, while foreign currency deposits grew 1.9%. RMB deposits increased 3.4% to CNY572.2bn in July. RMB trade settlement volumes shrank by a quarter to CNY149.0bn from CNY205.9bn.

• Bank loans grew by 1.5% m/m or 17.2% y/y in July. Loans for use outside of Hong Kong (+4.7%, m/m) continued to grow faster than loans for use in Hong Kong (0.9%). Claims by Hong Kong’s banks on Mainland entities continued to expand to HK$1.81trn in June.

Hong Kong - Money Supply

-5

0

5

10

15

20

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

M2, y/y M2, m/m

Hong Kong - Interest Rate Spread(USD LIBOR - HKD HIBOR, basis point)

-5

0

5

10

15

20

Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11

3-month 12-month

Hong Kong - RMB Deposits

0

100

200

300

400

500

600

700

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

012345678910

Deposit, RMBbnTrade settlement amount, RMBbnRMB as % of Total Deposits (RHS)

Hong Kong - HKD Loans made by Authorised Institutions

55

60

65

70

75

80

85

90

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

-5

0

5

10

15

20

25

Loan-to-deposit Ratio Loans, y/y (RHS)

Hong Kong - FX Reserves(USD bn)

0

50

100

150

200

250

300

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Hong Kong - Banks' Claims on Customers in Mainland China

0

500

1,000

1,500

2,000

2,500

Jun09

Sep09

Dec09

Mar10

Jun10

Sep10

Dec10

Mar11

Jun11

0

5

10

15

20

25

30

Non-HKD Claims, HKDbnHKD Claims, bn% of All External C laims (RHS)



HONG KONG

PROPERTY MARKET: TRANSACTIONS DECLINED SHARPLY IN JULY ON ELEVATED PRICES

• Transaction volumes fell sharply to HK$39.4bn in July from HK$69.5bn in June, reflecting the impact of government measures to curb property prices. However, the Centa City Leading Index inched up to 99.4 in August, from 99.1 in July, an indicator that property prices will remain elevated.

• Going forward, a strong RMB and a negative real interest rate will continue to support property prices. As such, a massive property selloff is unlikely.

Hong Kong - Centa City Leading Index

50

60

70

80

90

100

110

Aug08

Nov08

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

Hong Kong - Property Sales Transactions

0

10

20

30

40

50

60

70

80

90

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

0

2

4

6

8

10

12

14

16

18

Volume, thousand units (RHS) Value, HKD bn

Hong Kong - Mortgage Interest to Rental Ratio

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 2011

Hong Kong Kowloon New Territories

Below 100 means the interest expense for a 50sq m flat with 30% down is cheaper than renting the same flat.

Hong Kong - Housing Market

80

100

120

140

160

180

200

Feb09

May09

Aug09

Nov09

Feb10

May10

Aug10

Nov10

Feb11

May11

Aug11

20

25

30

35

40

45

Property Price Index (1999=100)Centaline Affordability Ratio, All Households (RHS)



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