Signs of rebound for China’s economic dynamics post some troublesome situation

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Australian Economy, Chinese Economy

Chinese economy had entered the third quarter of 2016 at a slightly weaker note after witnessing a resilient growth fueled by decisive policy support in the second quarter of 2016. The rebound in the real estate sector was seen to be otherwise fading while infrastructure investment fell sharply. The downward trend in fixed asset investment persisted in July. In the first seven months of the year, urban fixed asset investment excluding rural households expanded 8.1% over the corresponding period. This was the weakest growth on the record. This was below 9% increase registered in January – June 2016 period and undershot the 8.8% of market expectations. A month-on-month comparison showed that the investment in urban fixed assets rose a seasonally adjusted 0.31% in July, which was below 0.40% increase in June. All the three sectors (the primary, secondary and tertiary) registered a slower growth in the seven months up to July.

Meanwhile, the Caixin Manufacturing PMI in China stood at 50.0 in August 2016 down from 50.6 in July. The output and new orders eased. Employment fell and backlog of work rose further. Input costs and prices charged were up at a weaker pace. Manufacturing PMI in China averaged 49.36 from 2011 until 2016, reaching at an all-time of 52.3 in January of 2013 and record low of 47.2 in September 2015. Non-manufacturing PMI was at 53.5 as compared with previous figure of 53.9. Service PMI however recorded growth and stood at 52.1 against 51.7 in previous month. China’s survey based unemployment rate was ~4.05% in July. Retails sales grew 10.2% yoy in July against 10.6% in June while industrial production was at 6% yoy. Real estate developers were seen to be paying down debt instead of new projects and the cash holding of Chinese firms jumped 18% last quarter. But, there was more room for monetary easing as inflation declined for the third straight month in July to 1.8%. Policy stimulus and a weak yuan have been considered to boost growth throughout the rest of the year. On the otherside, a rapid cooling in the property sector prompted many experts to think that the Chinese economy would slow sharply. The Chinese government is targeting the economy to grow between 6.5% to 7% while Focus Economic forecasts for the GDP growth at 6.6% in 2016 and 6.3% in 2017. Moody’s and Reuters anticipated FAI to expand 8% for the first eight months of the year, which is the lowest pace of growth since 1999. Moody’s expected overall trends to remain flat.

On the other hand, the latest economic data with industrial production surging 6.3% annually in August 2016, which is indeed at a faster rate since March 2016, is quite significant in terms of a turnaround. Even retail sales growth witnessed a rise of 10.6% in the month of August which is up 13.1% from July’s data. This data is indicative of less probability of further monetary easing. The purchasing managers’ index has touched a 10-month high level of 50.4. Overall, steadiness seems to be playing a role with regard to the economic growth in the third quarter from what was seen in the first half.

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Fixed asset investment and Housing sales (Source: The Wall Street Journal and CEIC Data)

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