China: Economy Showing Signs of Stabilising

Consensus Forecasts

Following a lacklustre first half performance, China’s economy appears to have started the second half on a stronger footing, according to latest data releases. July’s batch of leading indicators came in ahead of market expectations, with industrial production, in particular, hitting a five-month high after output rose by 9.7% from a year earlier. This compares with an 8.9% increase in the previous month. In other parts of the economy, nominal retail sales and fixed asset investment continued to expand at a steady pace. The former rose by 13.2% (y-o-y) in July, a touch lower than the 13.3% increase in June, while growth in the latter was up 20.1% in the first seven months of this year, unchanged from the figure reported for the first six months. Adding to signs of a stabilising economy, industrial profits growth rose sharply in July, while the official purchasing managers’ index hit a 16-month high in August. And to add to this, China’s labour market appears to be holding up well as new job opportunities rose sharply last month. Confidence in the economy has been boosted by the announcement of a mini-stimulus package by the State Council in July. The measures included tax breaks for small businesses, supporting investment in certain sectors as well as addressing structural problems in the economy and progressing with financial reforms. While growth expectations for this year have stabilised, forecasts for 2014 have dipped slightly, however.

Meanwhile, July’s upbeat trade report offers further evidence that the economy has passed its worst as exports and imports reversed their declines in June, rising by 5.1% (y-o-y) and 10.9% respectively. Overseas shipments were boosted by strong demand from the US and Europe.

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