China - August data bring more signs of stabilisation

China Macro: Growth momentum picked up in August, property market data still weak

As expected, China’s activity data for August published this morning brought further signs that the economy is stabilising, following four months of slowing momentum. After manufacturing PMIs, lending and foreign trade data for August had already come in stronger than expected, and deflationary pressures showed further signs of easing, today retail sales and industrial production showed a turnaround as well. Retail sales accelerated to 4.6% yoy (July: 2.5%, consensus: 3.0%), and to 0.3% mom s.a. (July: 0.0%). Industrial production picked up to 4.5% yoy (July: 3.7%, consensus: 3.9%), and to 0.5% mom (July: 0.0%). Meanwhile, fixed investment slowed further to 3.2 yoy ytd (January-July: 3.4%, consensus: 3.3%). The surveyed jobless rate dropped back to 5.2% (July/consensus: 5.3%). Despite the improvement in most of the macro indicators, the property market data show that the recent stepping up of support for the sector (with for instance many cities sharply easing downpayment requirements) still has to filter through. Residential property sales weakened to -1.5% yoy ytd (January-July: +0.7%), while property investment remained clearly in contraction mode. All in all, Bloomberg’s monthly GDP estimate for August showed the first improvement since April, rising to 5.9% yoy (July: 5.2%).

Piecemeal monetary easing continues

Yesterday, the PBoC cut the reserve requirement ratios (RRRs) for banks for the second time this year, in line with our expectations. The RRR for large banks was cut by 25bp, to 10.50%, freeing up additional liquidity in the banking system and enabling banks to step up lending to local governments to help implementing further fiscal stimulus. The RRR for smaller banks was cut by 25 bp as well, to 8.50%. Today, the 1-year medium-term lending rate was kept unchanged at 2.50%, in line with consensus expectations including ours. This increases the likelihood that the 1-year loan prime rate will be kept on hold next week as well. Despite this pause, we still expect further mini cuts in several policy rates in Q4, next to ongoing targeted support for the property sector and domestic demand. All in all, we think the latest macro data and ongoing support measures taken lend support to our view that quarterly growth will bottom out in Q3, following the deceleration in Q2.