China: Real activity likely moderated in July – Standard Chartered

China’s official manufacturing PMI rebounded to 49.7 in July from 49.4 in June on improving production activity and demand, notes the research team at Standard Chartered.

Key Quotes

“Both the production and new orders sub-indices ended four consecutive months of decline, edging up 0.8ppt and 0.2ppt to 52.1 and 49.8, respectively. Despite the rebound, the new orders and new export orders PMIs remained in contractionary territory, suggesting subdued demand. Non-manufacturing PMI edged down to 53.7 in July (from 54.2 prior) mainly on slower construction activity, which was affected by hot and rainy weather.”

“We estimate that FX reserves declined by USD 20bn on FX valuation effects. Exports likely grew marginally while imports may have contracted further, with the trade surplus remaining sizable.”

“We expect CPI inflation to have edged up on higher pork and vegetable prices. PPI inflation likely stayed flat. Industrial production (IP) growth may have eased, partly on seasonality. We expect YTD fixed asset investment (FAI) growth to have remained flat thanks to base effects, and retail sales growth to have retreated from the one-off car sales boost in June.”

“M2 growth likely slowed on net liquidity withdrawal by the People’s Bank of China (PBoC) and tax payments. Meanwhile, total social financing (TSF) outstanding growth may have edged up further.”

“Solid corporate bond and local government special bond financing likely lifted credit growth, despite CNY loan growth having eased further. The contraction in off-balance-sheet financing may have stabilised.”