China October Economic Data Preview: More Signs Of Life

The improving economic activities seen from September data have raised hopes for the world’s second-largest economy to snap out of a seven-quarter-long slowdown and head toward a gradual recovery.

China's economic growth eased to a three-and-half-year low of 7.4 percent in the third quarter, down from 7.6 percent in the second quarter and 8.1 percent in the January-March period. Economists polled by Thomson Reuters expect China’s GDP to accelerate to 7.7 percent in the last three months of this year. That would put it on track to beat the government target of full-year growth of 7.5 or above.

China's economic model that delivered three decades of double-digit growth is running out of steam, and Beijing is determined to promote service industries and consumer spending, while trimming its reliance on exports and investment.

In the first three quarters of this year, consumption surpassed investment as China’s biggest growth engine, accounting for 55 percent of growth, while investment contributed 50.5 percent -- something that has rarely happened over the past decade. With external demand weak, net exports actually subtracted 5.5 percent, according to data from the National Bureau of Statistics.

Things seem to have stabilized in September, and the official October Purchasing Managers' Index was one of the first indications that the Chinese economy has begun perking up last month.

China’s official PMI rose to 50.2 in October from 49.8 in September. It marked the first reading above 50 -- which divides a pickup in activity from a slowdown -- since July.

Factory output and investment in China may have gained steam in October driven mostly by the government’s pro-growth policy steps. Export growth likely moderated last month, while import growth is expected to rebound on recovering domestic demand. Bank lending likely eased slightly in October

October Data Outlook

Nov. 9 - Consumer Price Index & Producer Price Index: Consumer price inflation fell slightly in September on the back of falls in vegetable prices that continued into October. But the disinflationary effect will have been offset in October by a rise in pork price inflation. Overall, China’s inflation looks tame, with consumer prices in October seen rising 1.9 percent from a year ago -- the same as in September and slightly higher than a 30-month low in July.

The input price index in the official manufacturing PMI report jumped to 54.3 in October from 51, which suggests producer price inflation in October likely fell 2.7 percent from the year-ago period, easing from September’s 3.6 percent annual drop. This would represent the first increase in 15 months and indicate a general improvement in margin for upstream manufacturers.

Nov. 9 - industrial production: Economists expect growth in China’s factory output to show another uptick in October, to 9.4 percent from a year earlier, accelerating from the annual pace of 9.2 percent in September and a three-year low of 8.9 percent in August.

Nov. 9 - fixed-asset investment: Policy support has spurred a rebound in infrastructure investment in recent months. Annual growth in fixed-asset investment may have quickened slightly to 20.6 percent in the first 10 months from 20.5 percent in the January-September period.

“FAI in housing and manufacturing is unlikely to see a strong recovery due to high corporate leverage and excess capacity,” Societe Generale economist Wei Yao wrote in a note. “However, infrastructure alone should be able to push total FAI growth higher.”

Nov. 9 - retail sales: Retail sales have remained resilient in real terms despite the weak economy. According to Ministry of Commerce, retail sales rose 15 percent from a year ago during the eight-day break of China's National Day holiday, compared to 14.2 percent year-on-year for the entire month of September. Annual growth in retail sales was expected to have edged down to 14 percent in October from September's 14.2 percent.

Nov. 10 - trade: China's export growth may have moderated to 9 percent year-on-year in October after September's surprisingly strong reading of 9.8 percent. The overall picture was one of stabilization rather than a strong rebound in external demand from the U.S. and European countries -- China's two largest trading partners -- which accounted for more than one third of the country's total exports in 2011.

Meanwhile, import growth in October is expected to have rebounded to 3.1 percent from a year ago from an increase of 2.4 percent in September.

In the first nine months, China's exports and imports have grown a combined 6.2 percent, well below the 10 percent annual growth target set by the Commerce Ministry.

The monthly trade surplus was estimated at $26.9 billion, narrowing from $27.7 billion in September.

Nov. 10-15 - bank lending: Economists polled by Thomson Reuters estimate that China's banks issued 600 billion yuan ($96.13 billion) of new loans in October, down from September's 623.2 billion yuan. That implies total lending is still on course to exceed 8 trillion yuan in 2012, the government's full-year target.

Economists also forecast the broad measure of M2 money supply to have grown 14.5 percent in October from September's 14.8 percent. Bank deposits usually decline substantially in the month following the quarter end – i.e. April, July and October. It seemed to be the case this time again.

It was reported that the big four state banks saw a monthly deposit outflow of 1.8 trillion yuan by Oct. 28, more than the outflow that occurred in July.