Key real economy indicators released September 14th indicated a slowdown on both the supply and demand sides. Industrial output for August expanded 6.0% YoY, down considerably from 6.4% during July, while fixed-asset investment grew 7.8% YTD YoY, slumping substantially from 8.3% during January-July. Retail sales increased 10.1% YoY in August, down from 10.4% over July.
The aforementioned indicators provide a convincing counter argument to the somewhat optimistic picture painted by the figures which had been released earlier. Upon closer inspection however, even the seemingly strong PMI data expose some vulnerabilities about the economy. The official Purchasing Managers' Index for manufacturing (PMI) released August 31st improved to 51.7 for the month from July's 51.4. However, the official services sector PMI slowed to 53.4 from 54.5 in July, suggesting the sector – 51.6% of GDP in 2016 – is losing momentum.
Chinese trade data released on September 8th showed August imports expanded 13.3%, quickening the pace from July's 11.0%, however exports growth slowed to 5.5% YoY, down from 7.2% in July. Trade surplus narrowed from July's USD46.73bn to USD41.99bn for the month.
Softening coincident indicators such as industrial output and retail sales on one hand, and firming leading indicators such as imports and PMI on the other, together paint a picture of an economy in limbo, with an as yet uncertain growth path. Even under normal circumstances ambivalent readings of economic data would usually stay the hands of policymakers, but this is especially true given the impending 19th National Congress of the Communist Party. This reinforces our view that the government will hold off on implementing substantial reforms regarding credit growth and/or overcapacity until the year's end at earliest.