China's industrial output seen slowing on rain, capacity curbs
Official data due on Friday (Aug 15) will show industrial production increased 6 per cent in July from a year earlier, down from a 6.8 per cent gain in the previous month, according to the median forecast by 33 economists in a Bloomberg survey. Retail sales growth is expected to soften to 4.6 per cent, which would be the lowest in five months.
Indicators reflecting the economy's third-quarter performance will likely draw keen attention from Chinese policymakers as they maintain a wait-and-see approach to additional stimulus. At a July meeting to set policies for the rest of the year, officials indicated a focus on implementing supportive measures already planned while promising to enhance aid when needed.
High temperatures, heavy rain and flooding hit several regions in China last month, forcing factories and construction sites to suspend operations. Authorities are stepping up scrutiny over excessive production in sectors such as coal, after signalling at the start of July that they are addressing cutthroat competition among businesses in what's dubbed the anti-involution campaign.
The world's second-largest economy grew 5.3 per cent in the first half of the year, well above Beijing's annual target of around 5 per cent. But challenges ahead are rife with the continuing real estate slump and deflationary pressure becoming entrenched.
A contraction in property investment may have deepened in the January to July period from the first half, moderating fixed-asset investment growth, the survey shows.
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The cooling momentum could have pressured the job market, with the urban unemployment rate expected to inch up to 5.1 per cent last month.
Ongoing trade negotiations with the US also create uncertainty and make businesses cautious about expanding. American levies averaging about 55 per cent have significantly reduced China's exports to the world's largest consumer market. Any talks to lower that rate will likely be tough.
Treasury Secretary Scott Bessent has indicated that Washington wants to see measures from China over an extended period to stem the flow of chemicals used to make fentanyl before lowering duties. He also ruled out including Chinese investments in the US as part of any trade pact.
This makes reducing China's trade surplus with the US potentially more challenging compared to other regions such as Japan and the EU, which have committed billions of US dollars in their deals with America.
Domestically, investors will watch closely for concrete measures the government and companies will take to trim excess and outdated capacity. Despite rhetoric to ease the rat race among enterprises, questions remain about the government-led campaign's effectiveness, given that many of the sectors plagued by the problem are privately owned and domestic demand has been stubbornly weak.
Ending price wars in sectors such as solar power and electric vehicles will be essential to reflating the economy. It will also address concerns of trading partners over Chinese goods flooding their markets and squeezing local industries. BLOOMBERG
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