China August data to hold mainly steady, provide window for reform push

BEIJING (Reuters) - Signs of strength in China’s industrial sector should give Beijing room to push much-needed reforms through the end of the year, though trade and investment are expected to remain weak, according to Reuters polls ahead of a flurry of August data.

Birds fly past the chimney of a thermal power plant as China's national flag flutters in a suburb in Shanghai January 9, 2015. REUTERS/Aly Song/File Photo

Growth momentum from a housing recovery and government infrastructure spending, and evidence that companies are hoarding cash instead of investing, means China’s policymakers are unlikely to cut interest rates or bank reserve requirements any time soon, sources have told Reuters.

The economy grew faster than expected in the second quarter, and strong July industrial profits and an official August factory survey last week showed momentum is continuing into the third quarter.

But analysts say the economy has become too reliant on higher government spending and a property rebound that may be running out of steam, even as debt piles up.

Without a pick-up in demand and private sector investment, economists predict policymakers will have to choose between sticking to reforms or launching another round of stimulus as early as the first quarter of next year.

With global demand subdued, Asia’s trade recession shows no sign of abating soon and economists polled by Reuters expected China’s August exports fell 4 percent, a similar rate to July.

Imports may have fallen 4.9 percent, which would be a significant improvement from July’s 12.5 percent fall, likely due to higher commodity prices.

China’s trade surplus is forecast to have expanded to $58 billion in August.

Consumer inflation is expected to remain weak, falling slightly from July to 1.7 percent.

Four-plus years of producer price deflation likely narrowed again in August, and may have declined at the slowest pace in 25 months as higher commodities prices have helped breathe life into the industrial sector.

China’s leaders have vowed to meet targets for cuts in coal and steel capacity this year, which would provide further support for manufacturers, though progress has been slow as some steel mills and local governments resist Beijing’s prodding.

New yuan loans in August likely rose to 750 billion yuan ($112.32 billion) after a big decline in July.

Growth in outstanding loans may have remained at 12.9 percent, while M2 money supply is expected to have risen 10.4 percent in August after falling to 10.2 percent growth in July.

Fixed asset investment growth for Jan-Aug is expected to have hit the lowest point since December 1999, cooling to 8 percent, as investment from private firms falls.

Beijing has repeatedly promised to push through market-based reforms to help boost confidence among private firms, which continue to face policy uncertainty and market-access issues.

In a sign of the tension between reform and growth, President Xi Jinping again committed to market reforms and overcapacity promises in a meeting last week, but the country’s top planning official said it will take “arduous efforts” to meet annual economic targets.

Growth in industrial output likely ticked up marginally to 6.1 percent in August, possibly due to stronger demand for building materials, while retail sales growth may have also edged higher.

Foreign exchange reserves for August likely dipped to $3.19 trillion after falling slightly in July.

China’s reserves have stabilised in the last few months despite downward pressure on the yuan, as analysts say the government has been successful with measures to limit capital outflows.

Forex reserves data are expected to be released on Wednesday, with trade and inflation coming on Thursday and Friday, respectively.

Industrial output, investment and retail sales will be released on Sept. 13. Loan and money data will be released Sept 10-15.

($1 = 6.6775 Chinese yuan renminbi)

Reporting by Elias Glenn; Editing by Kim Coghill