Chinese economic data has disappointed markets in recent months and prompted economists to downgrade their GDP forecasts.
But July data largely came in better than expected.
Here are the key takeaways:
- While industrial production posted a significant beat, “the headline figures in investment, consumption and exports do not seem strong enough to explain the acceleration in IP,” writes Societe Generale’s Wei Yao. Most of this gain came from a pick up in property construction.
- FAI data showed housing gave it a big boost, with property starts jumping 45.2% on the year, compared with 14.2% in June. “Although the base effect helped, this pace was nonetheless the fastest in 33 months,” according to Yao. Meanwhile infrastructure investment only climbed 18.7% in July, from 18.3% the previous month.
- Gold and jewelry sales helped push retail sales rising 41.7% YoY in July after growing 30.2% in June.Auto sales slowed to 9.1% from 11.4%.
- Producer prices were down for a fourth straight month but are expected to have bottomed out. “This will be one factor supporting nominal outperformance of import growth over export growth in coming months,” wrote Yao.
- With inflation being “well-anchored” and the outlook being “relatively stable” this does give policymakers room to ease if they need to. But with a rising debt risk, “a balanced and reserved approach is the most likely policy choice.”
- The strong export number suggests improving external demand, while better import growth shows improving demand growth.
- Chinese copper imports could reflect a cash squeeze, according to Lombard Street Research’s Freya Beamish. “Copper imports ratcheted up 27% from the Q1 average in July, albeit again from a low base. With tightening liquidity conditions, firms have ramped up the practice of buying copper with collateralized loans and then selling it to raise cash and relieve illiquidity. (Anecdotal evidence centres around copper, but there is no reason why other commodities couldn’t be used — oil imports also bounced.)”
While the rebound in industrial production might prompt GDP revisions, Yao warned that growth outlook beyond the third quarter is still uncertain. This is because property sales have been falling and because credit growth continues to slow.
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