China: Expect upbeat economic activity in July – ING

Major economic activity data from China will be out on 14 August and Iris Pang Economist at ING suggests that they expect a positive picture overall.

Key Quotes

“Retail sales should grow faster from last month due to summer holiday spending (INGf: 11.5%YoY; cons: 10.8%; prior: 11.0%). Among all items, the largest in terms of scale is automobiles. Consumers tend to spend on vehicles when they cannot use their spare cash to buy extra homes due to tightening home purchase policies. The second largest item is food & beverage, which should benefit from holiday spending.”

“We also expect industrial production to grow faster (INGf: 7.8%YoY; cons: 7.1%; prior: 7.6%). Cleaning up overcapacity factories in metal industries is yielding results. Strong growth in industrial production will come from the metal sectors. Recovering global demand and rising domestic demand for consumer electronic goods continue to support industrial production. Industrial growth should speed up in coming months to fulfil winter holiday exports orders from Europe and US.”

“Investment may not perform as well as retail sales and industrial activities. We expect fixed asset investment (FAI) will slow slightly (INGf: 8.5%YoY; cons: 8.6%; prior: 8.6%). Over 20%YoY growth in infrastructure (contributed 21% in FAI, Jun YTD 2017) would balance around 5% growth in real estate (contributed 23% in FAI, Jun YTD 2017). Sales of properties could be sluggish because more cities are imposing tighter home-buying policies.”

“Looking forward, upbeat economic data means cleaning up overcapacity industries will continue. The government is gathering comments on the detailed framework of debt-toequity swap structures. This indicates debt-to-equity swaps will play an important role during the deleveraging process. Apart from deleveraging tools, the government is proceeding the clean-up process from one sector to another. Positive results from cleaning up the coal and steel sectors (at least prices of these materials are no longer deflating) are setting the model for cleaning up cement and glass.”

“In short, China will keep deleveraging, but not too fast to risk hurting the economy.”