Barclays with a research note on yesterday' soft data from Chin and a look ahead of the People's Bank of China and the yuan
The data from Thursday is here:
- China (August) Industrial Production: 6.0% y/y (expected 6.6%)
- China - August data for Retail Sales 10.1% y/y (expected 10.5%) + investment data
Barclays (bolding is mine):
Activity data showed a broad-based moderation in August, for a second consecutive month.
We think this reflects
- softer export growth,
- the impact from factory closures amid stricter environmental inspections in eight provinces,
- and fading quasi-fiscal support,
- while the housing market remains resilient.
In contrast to a strong rebound in manufacturing PMIs and imports, industrial production growth declined to this year's low of 6.0% y/y in August, from 6.4% in July, and FAI growth was weaker than expected, slowing to 7.8% y/y YTD from 8.3% in July.
- Given the average IP growth for July-August of 6.2% and a likely rebound in September activity following the conclusion of environmental inspections in eight provinces, we continue to expect a gradual slowdown in growth;
- we forecast GDP growth to moderate from 6.9% q/q saar in Q2 to 6.5% in Q3 and 6.3% in Q4.
Continued strong excavator equipment sales of c.100 % y/y in Jun-Aug also point to strength in investment demand.
- That said, we expect pollution control measures implemented this year (e.g. the government set a hard target for pollution controls during the 'heating' season of Nov 2017 - Mar 2018) to be stricter than in previous years, which could be a swing factor for Q4 17-Q1 18 growth.
On the PBOC and yuan:
- We expect the PBoC to maintain its monetary and regulatory tightening bias, given that deleveraging and preventing risks will continue to be its top priority in the coming quarters.
- Despite the broad-based moderation in data, we still expect full-year GDP growth to be able to meet the government's target, and see no immediate need for policy makers to reverse their stance.
- We think the softening in the PBoC's tightening bias since late May appeared to encourage a rebound in leveraging in June-July, which led the central bank to revert to a tightening bias in August.
- Notably, the PBoC resumed OMO 28d operations on 6 September (for the first time since June), which we think confirmed its stance to maintain elevated short-term policy rates through the release of longer-tenor liquidity.
- Looking ahead, we think soft inflation (we still expect CPI inflation to stay below 2% in H2 despite a rebound in August), moderating growth momentum, and reduced CNY depreciation pressures suggest that the central bank likely will maintain a prudent monetary stance with a tightening bias, while enhancing fine-tuning to balance between preventing risks and ensuring growth stability.
- Risks to our view include changes in economic fundamentals such as a sharper-than-expected slowdown in growth, much stronger inflation, or renewed CNY depreciation pressures.
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Interestingly the bank doesn't mention here the upcoming National Congress
- China's Communist Party Congress begins October 18
- 5 things to watch for at the Chinese Communist Party Congress
Everything will be kept 'prudent' through to then - have no doubt!
