China Data From Investment to Retail to Dictate PBOC’s Next Move

At least it’s not getting worse.

That’s the conclusion about China’s slowdown that economists are looking for from the flurry of indicators scheduled for Thursday. Industrial output, fixed-asset investment and retail sales will provide a health check on the economy struggling to pull out of its weakest growth since the 2009 global recession.

Signs of stabilization could be enough to keep the People’s Bank of China on the sidelines as it waits to see the impact of interest-rate cuts and loosened fiscal policy. One hopeful sign: the property market may be reviving.

“China’s economy is at its bottom,” Lian Ping, chief economist for Bank of Communications Co., China’s fifth-largest lender, said at a briefing in Shanghai Tuesday. “We are seeing more positive economic data since May, and that’s very different from January, when large numbers of data deteriorated sharply.”

Industrial output likely grew by 6 percent in May from a year earlier, according to the median estimate of analysts in a Bloomberg survey, a further improvement from a March figure that was the weakest since 2008. The growth rate for retail sales is seen bouncing off a nine-year low, to 10.1 percent, according to data compiled by Bloomberg. Fixed asset investment likely rose 11.9 percent in the five months through May.

Rate Decision

“The possibility of another rate cut will hinge on the tone of the May economic activity data,” JPMorgan Chase & Co. economists led by Zhu Haibin in Hong Kong wrote in a note.

The PBOC has already lowered interest rates three times since November and has twice cut bank’s reserve ratio requirements to encourage lending amid concern the economy’s slowdown would damage the job market.

So far, the results have been mixed. While indicators on house prices and manufacturing show some signs of stabilizing, factories remain plagued by falling prices and exports are sagging.

The producer-price index for May fell 4.6 percent, extending declines of more than three years. Exports fell for a third month and imports slumped the most in three months, data on Monday showed.

Also due for release in coming days: credit data for May which will show whether, even after encouraging banks to lend, demand for loans has picked up and companies are borrowing to expand.

Local Governments

Premier Li Keqiang’s government, seeking a full-year expansion of about 7 percent, is implementing a debt-swap program for local governments to ensure they get access to financing for infrastructure projects and prevent the economy from seizing up. The central bank is playing a key role, flooding the interbank market with cheap funds and moving to accept as collateral from banks the new bonds issued by regional authorities.

Along with rate cuts, PBOC options in the case of further economic deterioration include stepping up targeted, quantitative measures that get credit flowing to favored sectors, according to the JPMorgan economists.

PBOC Governor Zhou Xiaochuan could expand the central bank’s Pledged Supplementary Lending program, used in 2014 to channel credit to shantytown development.

Even if May disappoints, the effect of stimulus measures may increase in coming months.

“The impact of the looser policies will be more pronounced in the coming months, so we will see a rebound in the second half,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. He doesn’t expect to see major signs of improvement until later in the year.

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