CICC: Export growth remains elevated; PPI growth may reach a new high for the year.

CICC released a research report estimating that September domestic demand growth may improve slightly, while export growth remains elevated. On consumption, durable goods consumption remains under pressure, while offline consumption activity has picked up somewhat. On investment, driven by manufacturing and infrastructure, the cumulative year-on-year decline may narrow marginally. Exports benefit from the high prosperity driven by AI, maintaining high-speed growth. September inflation may rise further, with PPI growth possibly rising to around 4.5%, exceeding the year's high in June. The bank expects third-quarter GDP year-on-year growth of possibly 4.5% (previous value 4.3%). CICC's main views are as follows: Total retail sales growth may rise slightly. Auto and home appliance sales indicate that September durable goods consumption growth may come under pressure. The China Passenger Car Association estimates that September narrow passenger car retail sales fell 24.7% year-on-year, widening from -23.6% in August; Aowei data show that the decline in retail sales of four major categories of large home appliances also widened in September. However, September offline consumption activity may have improved; for example, the year-on-year decline in hotel revenue per available room, RevPAR (4WMA), narrowed compared with August, and the year-on-year increase in foot traffic in urban commercial districts expanded. Considering that total retail sales growth gradually declined in the same period last year, total retail sales growth in September may rise slightly to 0.5% (0.4% in August). The decline in fixed asset investment may narrow slightly. The bank expects fixed asset investment growth of possibly -7.0% in January-September (-7.2% in January-August). Export momentum continues, and on the funding side, support from new policy-based financial instruments and ultra-long special government bonds may be implemented faster; the bank expects cumulative year-on-year manufacturing investment of possibly -2.0% in January-September (-2.3% in January-August). The NDRC is accelerating project supervision, and the year-on-year decline in infrastructure may narrow somewhat. September continued August's accelerated special bond issuance, new policy-based financial instruments began to be deployed, and the construction PMI rose to 50.3% from 46.9% in August; the bank expects infrastructure investment to continue improving in September, with January-September infrastructure investment year-on-year possibly narrowing to around -3.8% from -4.0% in January-August. Real estate sales year-on-year may weaken marginally, and development investment is expected to remain under pressure. On sales, with demand-side policy optimization in some cities earlier, new home transaction area in 30 cities stopped falling and rebounded month-on-month in September, but the recovery was still limited, with the year-on-year decline widening to 10.8% from 6.3% last month. On land, after the August 28 new policy, with the capital occupation cycle of some projects extended, real estate developers still face funding constraints and may be cautious in land acquisition; in September, the planned gross floor area of residential land transactions in 300 cities widened year-on-year to -34.6%, and transaction value also turned down to 19.7% year-on-year. On investment, as the land market cooled somewhat, combined with weak developer sales collections and persistently weak new starts, the bank expects cumulative year-on-year real estate development investment in September to fall further to around -21.4% (August was -19.9%). Export year-on-year growth may be broadly flat versus August. From the demand side, manufacturing prosperity in overseas economies was generally high; the U.S. S&P manufacturing PMI rose 3.1 percentage points month-on-month to 57.0% in September, especially as emerging industries such as AI continued to maintain high prosperity, supporting China's exports in maintaining relatively high growth. In September, the new export orders sub-index of the China Manufacturing PMI fell 0.1 percentage point month-on-month to 50.0%. From other high-frequency data, driven by AI, South Korea's average daily exports in the first 20 days of September rose 89.7% year-on-year (August was 72.6%), while average daily semiconductor exports and imports rose 282% and 101% year-on-year (August was 216% and 75%), with growth accelerating. However, the higher base in the same period last year may slightly drag on export year-on-year growth. Overall, the bank expects China's exports and imports in September to grow 24.9% and 19.8% year-on-year (August was 25.0% and 28.2%). Driven by the quarter-end effect, industrial value-added year-on-year growth may rise. High-frequency capacity utilization data for major industries showed mixed year-on-year changes; the production sub-index of the September PMI rose 1.3 percentage points month-on-month to 51.7%, which may partly reflect concentrated production scheduling and delivery by some enterprises at quarter-end, and may also be related to a month-on-month easing of the negative impact from coal and other energy supply. The bank expects September industrial value-added year-on-year growth of 6.2% (5.2% in August). Overall, the bank expects third-quarter GDP year-on-year growth of possibly 4.5% (4.3% in the second quarter). September CPI year-on-year may rebound to around 1.0% (0.8% in August). On food, with pork supply still relatively ample while consumption improved seasonally, pork prices in 22 provinces and cities rose slightly from last month, and combined with a low base last year, the year-on-year decline narrowed to 16.9% from 20.9% last month; as the impact of high-temperature and rainy weather gradually faded, the month-on-month increase in average vegetable prices in September may be weaker than in the same period last year, driving the year-on-year decline to widen somewhat; fresh fruit supply was generally ample, prices continued to weaken month-on-month, and the year-on-year decline may also have widened somewhat. On energy, affected by rising international oil prices, domestic refined oil prices were raised twice, on September 11 and 24; the bank expects transportation fuel prices to continue rising month-on-month, and combined with lower oil prices in the same period last year, September energy prices may rebound noticeably year-on-year. On core inflation, after the summer vacation ended in September, prices for services such as air tickets, travel, and hotel accommodation faced seasonal downward pressure, but prices of industrial consumer goods such as consumer electronics still had some support; the bank expects core CPI year-on-year to remain broadly stable. September PPI year-on-year may rise further to around 4.5% (3.8% in August). In September, the PMI main raw material purchase price index and ex-factory price index reached 60.8% and 54.0%, respectively, up 4.2 and 3.6 percentage points from last month, implying month-on-month PPI of around 0.7% (0.4% in August). On energy, repeated Middle East geopolitical conflicts pushed up the crude oil supply risk premium; the average Brent crude oil price rebounded to around $100/barrel in September, driving synchronous increases in domestic diesel and other petroleum product prices, while slow recovery in domestic coal supply and port destocking pushed coal prices stronger; the bank expects energy-chain-related prices to be the main factor in the month-on-month rise in PPI; on nonferrous metals, with mine-side supply continuing to be tight, copper prices mainly fluctuated at high levels, and PPI year-on-year growth in nonferrous-related industries may remain relatively high; on ferrous metals, rising coking coal and coke prices supported steel costs, but the recovery in end-use demand from real estate and infrastructure was relatively limited, and rebar prices weakened in a volatile manner after rebounding early in the month; on building materials, rising coal prices combined with seasonal marginal improvement in construction demand pushed cement prices to stabilize somewhat, and float glass prices also rose slightly due to restocking demand and other factors. Policy efforts may drive a marginal stabilization in September financial data. Net government bond issuance in September was RMB 1.59 trillion, an increase of about RMB 350 billion year-on-year; both the absolute amount of net issuance and the magnitude of the year-on-year increase hit new highs for the year, which will provide important support for aggregate social financing. In addition, from late September, the 3M discount rate of state-owned and joint-stock banks steadily rose from the low of 0.5% since the start of the month, closing at 0.7% on September 30, whereas in the last 10 days of March and June, the 3M discount rate of state-owned and joint-stock banks fell by about 30bp; this also made the third quarter the first quarter this year to end with bill rates rising. Combined with the fact that new policy-based financial instruments were already launched for deployment in September, September credit extension is highly likely to improve from August, with the year-on-year decline narrowing. Overall, the bank expects new RMB loans in September of around RMB 1.2 trillion, new aggregate social financing of around RMB 3.6 trillion, outstanding aggregate social financing year-on-year possibly flat at 7.2%, and M2 year-on-year possibly flat at 7.5%. Market observation This week global equities diverged, the U.S. Treasury curve bear-steepened, the dollar strengthened, and copper, gold, and oil fell. On equities, China's September manufacturing PMI rebounded 0.3 percentage points to 50.1%, returning to expansion territory, with marginal improvement in prosperity. As of before the National Day holiday, the CSI 300 fell 1.8%, with real estate, pharmaceuticals, and banks leading gains. U.S. September nonfarm payrolls added 29,000 jobs, below the revised 133,000 in August, and the unemployment rate rose to 4.2% from 4.1%, showing marginal cooling in employment. The S&P 500 fell 0.3%, the Nasdaq rose 0.5%; the Hang Seng Index fell 2.2%, the Nikkei 225 rose 2.9%, and the German DAX fell 0.7%. On bonds, China's 1-year and 10-year government bond yields fell 1.3bps and rose 0.8bps to 1.22% and 1.68%, respectively; U.S. 2-year and 10-year Treasury yields rose 2bps and 11bps to 4.83% and 5.28%, respectively, with the term spread widening by 9bps; Japanese and German 10-year government bond yields rose 2.1bps and 3bps to 3.09% and 3.66%, respectively. On exchange rates, the dollar index rose 1.0% to 101.93, the renminbi appreciated 0.1% against the dollar to 6.71, appreciated against the euro, and depreciated against the yen. On commodities, LME copper, LME gold, and Brent crude fell 2.5%, 3.3%, and 1.7%, respectively; domestic glass and hogs fell 2.4% and 1.3%, respectively, while rebar rose 0.2%. Recently, Chinese and U.S. stock markets and long-end interest rates have diverged simultaneously, reflecting differences in the two countries' economic fundamentals. Since 2025, led by the AI sector, Chinese and U.S. stock markets have risen in tandem, with overall trends remaining consistent. But from July, trends began to diverge; compared with end-June, the S&P 500 rose slightly by 3%, while the CSI 300 fell 12% over the same period, among which the U.S. Mag 7 index rose 13%, while the domestic AI index fell 24%. At the same time, the divergence in Chinese and U.S. long-end interest rates further intensified. Chinese and U.S. long-end interest rates gradually diverged after 2021 and widened further in the third quarter of this year. From end-June to now, the 10Y U.S. Treasury yield rose 85bps to 5.29%, while the 10Y Chinese government bond yield fell 5.3bps to 1.71%. The simultaneous divergence in Chinese and U.S. stock markets and long-end interest rates reflects misalignment in the two countries' economic fundamentals. The AI-driven investment cycle and inflation risks pushed up expectations for the U.S. neutral rate and policy rate, and support for earnings drove U.S. stocks and rates higher together. In contrast, on domestic demand, August total retail sales rose only 0.4% year-on-year, and fixed asset investment fell 7.2% in the first eight months; the recent supply recovery has not yet translated into a broad rebound in demand. Looking ahead, compared with the similar divergence in stock markets and long-end interest rates experienced by China and the U.S. in 2023, this may mean that recent domestic countercyclical adjustment policies may accelerate in stages. At end-September, interest subsidies for eligible first-home mortgages, expansion of PSL rate cuts, and increased relending quotas were already introduced; if bond funds and policy-based financial instruments subsequently accelerate the formation of physical work volumes, this is expected to support domestic demand and a repair in expectations for Chinese assets. Weekly economic activity tracking In the fifth week of September, food prices fell overall; the Ministry of Agriculture's wholesale price index for basket products fell 1.1% week-on-week, among which fruit rose 1.5% week-on-week, while pork and vegetable prices fell 0.1% and 4.0% week-on-week, respectively. Bulk commodity prices continued to fall; the Nanhua Industrial Products Index fell 1.0% week-on-week and rose 13.5% year-on-year, among which silver, coking coal, hogs, and wood pulp posted relatively large week-on-week declines. Affected by the shift in the Mid-Autumn holiday, foot traffic in urban commercial districts rose 16.3% year-on-year, with growth turning positive from negative. Durable goods consumption weakened; retail sales of four major categories of home appliances fell 17.6% year-on-year on a 4WMA basis, and passenger car retail sales fell 29.3% year-on-year on a 4WMA basis, with both declines widening. Real estate sales were generally weak; commercial housing transaction area in sample cities fell 18.9% year-on-year during the week, and second-hand housing transaction area in sample cities also fell 18.9% year-on-year during the week, with both declines widening. On physical work volumes in construction investment, cement shipments fell 15.4% year-on-year on a 4WMA basis, and concrete deliveries fell 9.3% year-on-year on a 4WMA basis, with declines continuing to narrow; direct cement supply for infrastructure fell 4.8% year-on-year on a 4WMA basis, with the decline widening slightly. Export activity continued to improve; port container throughput rose 10.4% year-on-year on a 4WMA basis, with growth accelerating. On production activity, railway freight volume rose 2.2% year-on-year on a 4WMA basis, with growth accelerating somewhat. Property market prosperity tracking The CICC real estate prosperity index fell somewhat (94.0 vs. 94.6 the previous week), among which the sales index (89.9 vs. 90.1 the previous week) declined slightly, the supply index (97.1 vs. 97.1 the previous week) was basically flat, and the financing index (95.1 vs. 96.5 the previous week) declined somewhat. From the demand side, new home sales fell marginally year-on-year, and the year-on-year decline in second-hand home sales widened. On new homes, from September 26 to October 2, the year-on-year decline in new commercial residential sales area in 30 cities widened (-24.6% vs. -6.3% the previous week), among which the year-on-year decline in first-tier cities widened slightly (-3.7% vs. -2.6% the previous week), second-tier cities turned negative year-on-year (-30.2% vs. 1.4% the previous week), and the year-on-year decline in third-tier cities widened somewhat (-40.7% vs. -27.5% the previous week). On second-hand homes, from September 26 to October 2, the year-on-year decline in second-hand home sales area in 15 sample cities widened somewhat (-18.7% vs. -3.8% the previous week). From the supply side, land market transaction scale remained sluggish. On transactions, from September 21 to September 27, the year-on-year decline in planned gross floor area transacted for residential land in 300 cities widened (-60.2% vs. -56.9% the previous week). On heat, from September 21 to September 27, the average land premium rate in 300 cities rebounded somewhat (5.6% vs. 4.5% the previous week); by city tier, the average land premium rate was 5.9% in first-tier cities, 4.3% in second-tier cities, and 6.9% in third- and fourth-tier cities. This week 170 land parcels were launched (vs. 181 the previous week), and the failed auction rate was basically flat (0.6% vs. 0.6% the previous week). From the financing side, net domestic credit bond financing for real estate turned negative from positive. From September 28 to October 4, net domestic credit bond financing for real estate developers was -RMB 3.03 billion (vs. RMB 8.21 billion the previous week).