Yuan Sees Limited Reaction To Strong Data

Data from China was broadly positive: GDP 2.3% in 2020, and 6.5% Y/Y in Q4. Fixed asset investment increased 2.9%, industrial production grew 2.8% but retail sales shrank 3.9% in 2020 with most of the decline coming in the first half of the year.

• While the data is positive, ING cautions against categorizing this as a full scale recovery: "External demand has not yet fully recovered. This is a big hurdle for a full recovery of China's industrial production, especially for smaller manufacturers. The pandemic has resulted in a pause in international travel. And with rapid increases in Covid cases in the US and Europe, industries related to exports will continue to be in a difficult situation."
• ING also notes political risks to China as a headwind: "We expect the newly elected US government will continue most of the current policies on China, at least for the first quarter. That means tariffs and technology measures on China will still be in place."
• USD/CNH saw limited reaction to the data, last down 5 pips at 6.4842, off session highs of 6.4888.