China: Activity likely normalised in August – Standard Chartered

Standard Chartered analysts point out that China’s official manufacturing PMI eased slightly to 49.5 in August from 49.7 in July, staying below 50 for a fourth month in a row.

Key Quotes

“While the new export orders sub-index improved, the new orders PMI weakened 0.1ppt to 49.7, indicating softer domestic demand. The PMI production sub-index averaged 52 in July-August, better than in Q2-2019. The non-manufacturing PMI improved to 53.8 in August from 53.7 in July on a recovery in construction activity which offset services-sector weakness.”

“We estimate that FX reserves increased by USD 20bn on favourable asset valuation effects. Export growth likely picked up due to advance shipments to avoid the new round of tariff increase, while imports may have contracted further on weak domestic demand.”

“CPI inflation may have stayed flat at a relatively high level on rising food prices. PPI may have dropped further. We expect industrial production (IP) growth to have rebounded, normalising from July’s historical low.”

“Nominal retail sales growth likely picked up on improving car sales. Fixed asset investment (FAI) growth may have eased YTD on weaker manufacturing and real estate investment.”

“We expect M2 growth to have stayed flat in August on a modest net liquidity injection by the People’s Bank of China (PBoC) and a decline in fiscal deposits. Credit growth likely eased on tighter real estate financing.”