China September data seen tipping mild pickup in economy

EghtesadOnline: A flurry of data from China in coming weeks is expected to point to modest improvement in the economy in the third quarter as a government infrastructure spree and a housing boom boosts demand from steel and glass to furniture and appliances.

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04 October 2016

Exports are expected to remain, weak, however, while fixed asset investment is likely to hover near 17-year lows, leaving the economy imbalanced and highly reliant on a rebound in heavy industry and government spending for growth, according to Reuters.

"Firmer manufacturing activity points to faster GDP growth," ING's chief Asia economist Tim Condon wrote in a note on Tuesday, pointing to factory surveys last week.

"We revised our second-half GDP forecast to 6.8 percent from 6.5 percent and our full-year growth forecast to 6.7 percent from 6.6 percent."

Improving growth would reinforce views that the People's Bank of China will be in no hurry to cut interest rates this year and could even keep them on hold through 2017, he added.

China's steel demand should continue to strengthen on strong investment in housing and infrastructure, analysts at ANZ believe.

But the property market is showing signs of overheating, with a growing number of cities imposing restrictions on home purchases to curb soaring prices.

The September data deluge will kick off with foreign exchange reserves on Friday, followed by trade and inflation on Oct. 13 and 14, respectively.

Industrial output, investment and retail sales will be released on Oct. 19 along with second-quarter gross domestic product. Loan and money data will be released Oct. 10-15.

Economists polled by Reuters expected forex reserves dipped again to $3.18 trillion after dropping to the lowest since 2011 in August after the central bank intervened to support the yuan currency as it weakened to near six-year lows.

September exports likely fell 3 percent from a year earlier, slightly worse than in August and pointing to still sluggish global demand.

Imports may have grown 1 percent, after unexpectedly rising 1.5 percent in August for the first time in nearly two years, boosted by coal and other commodities and stronger domestic demand.

China's trade surplus is forecast to have expanded to $53 billion in September, versus August's $52.05 billion.

The consumer inflation rate may have picked up slightly to 1.6 percent on-year after falling in August to 1.3 percent, the slowest since October 2015.

Producer price deflation will continue to ease thanks to higher commodity prices, driving stronger profits for industrial firms. Economists predict a decline of only 0.3 percent after a drop of 0.8 percent in August.

And despite concerns about rapidly rising debt, policymakers likely remained generous about supplying credit.

New yuan loans likely rose to 1 trillion yuan ($149.96 billion) in September, after more than doubling in August to 948.70 billion yuan.

However, analysts warn much of the growth was likely due to strong mortgage demand, highlighting the risks to the banking system if property prices pop.

Growth in outstanding loans likely dipped to 12.9 percent, while M2 money supply is expected to have risen 11.6 percent in September, picking up from 11.4 percent in August.

In recent months money supply data has suggested many Chinese companies are hoarding cash rather than investing it, adding to views that further central bank easing would not be as effective in spurring economic growth as in the past.

Fixed asset investment growth for Jan-Sept is expected to edge up marginally to 8.2 percent but remain around the weakest pace since December 1999.

Strong government spending would likely contrast with further weakness in private investment, which grew just 2.1 percent in the first eight months of the year, remaining at record lows.

Growth in industrial output likely ticked up to 6.4 percent in September from August, while retail sales growth likely remained steady at 10.6 percent.