A spate of data releases over the coming days is expected to show signs of China's economy stabilizing in July after a slowdown that reduced its growth to its slowest rate in more than three years during the second quarter.
The National Bureau of Statistics is due to release inflation data (CPI, PPI) at 9:30 p.m. EDT on Wednesday, with industrial output (IP) data, fixed asset investment (FAI) and retail sales all following at 1:30 a.m. EDT on Thursday. Trade figures are due out on Friday. Bank lending data are due to be released any time between Aug. 10 and Aug. 15.
These releases should help markets gauge the pace of the recovery, the effectiveness of China's recent pro-growth measures and the transmission of the visible external weakness into Chinese exports since May.
Factory output and fixed asset investment are seen pointing toward a modest recovery, with easier inflation likely to give Beijing more room to tweak policy settings to underpin growth.
Retail sales, the biggest single driver of the economy earlier in the year, are expected to hold steady with year-on-year growth of around 13.7 percent. Meanwhile, bank lending in July is expected to be at a record high for the month, although below June's end-quarter tally.
"Overall, we think industrial activity is stabilizing, albeit at a low level," Barclays Capital analysts in Hong Kong, led by Jian Chang, wrote on Aug. 2. "June-July could mark the bottom for the economy, but a weak domestic recovery and external headwinds suggest continued mixed data flow in the near term."
The world's second-largest economy probably bottomed out in the second quarter, when growth cooled to 7.6 percent from a year earlier, as Beijing intensifies its policy fine-tuning to boost growth. The median forecast by economists polled by Reuters in July showed annual economic growth could go up to 7.9 percent in the third quarter and 8.2 percent in the last three months of 2012.
But the full-year growth rate is expected to dip to 8 percent this year from 9.2 percent in 2011, before picking up to 8.4 percent in 2013.
China's central bank pledged on Sunday to step up its monetary policy fine-tuning in the second half of this year and improve credit policy, echoing commitments made last week by top leaders to counter a deceleration in growth.
"In the second half, we must continue to reinforce fine-tuning and pre-emptive adjustment in monetary policy and improve credit policy to support the development of the real economy," the People's Bank of China said in a statement.
China must "launch some key projects, as soon as possible, to allow private investment in railways, public utilities, energy, telecommunications, financial, health and education industries, in order to set up examples," the State Council said last week, after a meeting chaired by Premier Wen Jiabao.
Local governments across China have unveiled a series of stimulus plans, echoing the message from top authorities, designed to promote strong growth. While more stimulus plans are likely to follow soon, their impact will be much smaller than the stimulus of 2008-09.
The cities of Ningbo, Nanjing and Changsha have all announced plans, while the province of Guizhou and Beijing look set to make their own stimulus proposals soon.
According to local news reports, the total value of these packages is likely to be around 4 trillion yuan, or 8 percent of one year's gross domestic product. Measures include tax cuts, consumption subsidies and large infrastructure investments.
"Policymakers will do whatever they can to ensure the strong lending in coming months, helping the economy recover in the second half of the year," economists from Capital Economics said in a July 26 note.
China's central bank has cut interest rates twice in the space of a month and lowered banks' required reserves ratio three times since November 2011, freeing an estimated 1.2 trillion yuan ($188 billion) for new lending.
The central bank is widely expected to ease policy further, as inflation is seen to come in well below Beijing's full-year target of 4 percent set at the beginning of 2012.
Economists polled by Reuters expect China's central bank to deliver its next interest rate cut in the third quarter, cutting both deposit and lending rates by 25 basis points. The poll also produced a consensus view that the central bank would cut banks' reserve ratio twice, by 50 basis points each, in the third and the fourth quarter of the year. That will bring the rate down to 19 percent by year's end.
July Data Outlook
Purchasing Managers' Index. Two surveys last week on Chinese factories showed PMI readings for July around the 50 level that demarcates expansion from contraction. After months of weakness, smaller, private-sector firms were beginning to stabilize, while larger, state-owned enterprises faced pressure from unsold inventories.
China's official PMI fell to an eight-month low of 50.1 in July, while a rival HSBC survey rose from 48.2 to 49.3, its highest level since February and little changed from a flash estimate of 49.5.
Overall, both PMI readings are still consistent with the view that recent policy stimulus is taking effect. With further policy support to come, economists expect both gauges to pick up in coming months.
Consumer Price Index. The annual CPI, a major gauge of inflation, may have eased to 1.7 percent in July -- the lowest level in 30 months -- from 2.2 percent in June, according to the median forecast of 29 economists polled by Reuters.
Food prices, which account for nearly one-third of the prices used to calculate China's CPI, are expected to stay flat in July.
Soybean and corn price hikes caused by an ongoing drought in the U.S. likely had limited impact on grain prices in China, as the country increased its grain imports from Brazil and Ukraine.
Moreover, China has a largely self-sufficient supply of grain, and the previous eight consecutive years of good harvests -- with a ninth consecutive good harvest expected -- should provide a solid foundation for maintaining grain price stability.
Meanwhile, the price of pork, which was a major contributor to food inflation in China last year, has been declining since the fourth quarter of 2011.
Producer Price Index. The PPI, a main gauge of inflation at the wholesale level, is expected to fall 2.5 percent in July from a year earlier, the fifth straight month of decline that could cut into corporate profits.
Industrial Production. Factory output probably rose 9.8 percent in July from the year-ago period, accelerating from 9.5 percent in June.
Retail Sales. Consensus calls for China's retail sales, the biggest driver of GDP growth in the first quarter, to hold steady at 13.7 percent in July. This implies a sustained pickup in property sales, while auto sales are set to disappoint.
"With household income still growing rapidly and consumer confidence recovering slightly, retail spending should hold up," Mark Williams, chief Asia economist at Capital Economics, wrote in a July 26 note.
Trade. China's export growth likely eased to a three-month low in July on faltering foreign orders, though imports are anticipated to rebound from a disappointing June reading.
China's exports in July may have grown 8.6 percent from a year earlier, slowing from the 11.3 percent pace in June, while annual import growth was seen quickening to 7.2 percent from 6.3 percent in June.
The monthly trade surplus was estimated at $34.3 billion, widening from $31.7 billion posted in June.
Fixed-Asset Investment. Annual growth in fixed-asset investment is seen picking up moderately to 20.5 percent in July from June's 20.4 percent, as "green shoots" in infrastructure investment offset a likely further slowdown in property investment growth
"The response of investment spending to policy stimulus seems to have been faster," Williams said. "With lending growing strongly, investment growth should have risen further, though the weakness in property construction activity remains a concern."
Home Prices. China is due to publish data on home prices in 70 major Chinese cities for July on Aug. 18. In June, home prices broke eight straight months of decline, official data showed.
The average home price in China's 100 major cities edged up in July for the second straight month, according to a private sector survey. The average price of 8,717 yuan per square metre in the 100 cities surveyed was 0.33 percent higher than June, accelerating from June's month-on-month increase of 0.05 percent, the China Real Estate Index System (CREIS) said.
However, home prices in the 100 cities were still down by 1.77 percent in July from a year earlier, marking the fourth year-on-year fall since June 2011 when CREIS first began tracking the year-on-year change.
Bank Lending. New lending is a crucial barometer for growth in China's economy. In July, China's banks probably lent 690 billion yuan, which would mark a record high for July lending, albeit below June's quarter-end jump to 920 billion yuan.
New lending by "China's "big four" state-owned banks, which account for around 30 to 40 percent of total bank lending, increased to 220 billion yuan in July, up 30 billion from June, according to the official Shanghai Securities News newspaper, which cited unnamed sources.
The "big four" are Industrial & Commercial Bank of China (HKG: 1398), China Construction Bank Corporation (HKG:0939), Bank of China Ltd. (HKG:3988) and Agricultural Bank Of China Limited (HKG:1288).