Photographer: Tomohiro Ohsumi/Bloomberg

China Watchers Are About to Get a New Set of Economic Clues

  • Retail sales seen stable, factory output may pick up
  • Fixed-asset investment may slow again, credit to bounce back

China watchers get their next big dose Tuesday, when a trio of indicators offers the next round of clues as to whether the world’s second-largest economy faltered for a second month or if its first-half stabilization remains intact.

The July round showed factory output, retail sales, fixed-asset investment and new loans all slowed and missed estimates in Bloomberg economist surveys. Here’s what they’re looking for when most of the August data are released at 10 a.m. Beijing time:

  • Retail sales probably rose at the same 10.2 percent year-on-year pace as the prior month, the survey showed as of late Friday. Anything below the 10 percent gain in May would be the worst reading in at least a decade.
  • Industrial production probably picked up to 6.2 percent from a year earlier from the prior month’s reading of 6 percent, the survey shows.
  • Fixed investment year-to-date probably slowed to 7.9 percent. That would be weaker than the last reading of 8.1 percent, which was the lowest since 1999.
  • New credit and money supply data due sometime this week may show stabilization.

While China still remains a worry for global investors with mounting leverage in the financial system and rising bad bank loans, the economy this year has continued to prove the bears wrong. Gross domestic product rose 6.7 percent in the second quarter from a year earlier, beating estimates and dimming expectations that the People’s Bank of China would unleash new stimulus after holding the benchmark rate at a record low since October. That may not last according to forecasters, who project another cut by year-end.

"As downward pressures on economic growth revive, the government will need to intensify policy support again to defend its growth target," UBS Group AG economists led by Zhang Ning wrote in a recent note. "The impact of earlier stimulus measures continues to fade."

Even with an expansion that’s one of the world’s fastest among major economies, the quarterly growth pace was the slowest since the global financial crisis and the 6.9 percent rise last year was the slowest in a quarter century. Economists expect that to continue eroding in coming years, slowing to 6.5 percent this year and 6.3 percent in 2017.

Money supply data, which the PBOC typically releases around mid-month, may be released sometime this week before markets and offices close Thursday and Friday for the Mid-Autumn Festival holiday. The three main credit gauges all missed expectations last time.

Here’s what projections show for August:

  • Aggregate financing probably rebounded to 900 billion yuan ($135 billion), after tumbling to a two-year low of 487.9 billion yuan in July
  • New yuan loans climbed 725 billion yuan from 463.6 billion yuan in July, which was also a two year low
  • The broad M2 money supply rose 10.5 percent after a prior gain of 10.2 percent, which was the weakest gain since April 2015

That last round of data signaled that policy makers have be been seeking to curb the debt expansion, even if that slows the economy, instead of boosting demand with cheap credit that risks undermining financial stability.

GDP may slow on "a softening property market, continued weakness in private investment, and reduced policy supports," Morgan Stanley analysts led by Robin Xing said in a note. "The risk of a large immediate financial or growth shock in China is still low."

— With assistance by Xiaoqing Pi, and Jeff Kearns

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