• Partial economic indicators are starting to stabilise somewhat, but the overall trend in the data was disappointing for the month of July given our expectations for a slight improvement in economic growth over H2 2012.
• Industrial production softened further along with nominal retail sales, while export growth and bank loans were both well below expectations. In contrast, real retail sales growth was robust, while investment has remained stable despite further slowing in real estate investment.
• Despite some soft data, the PBoC hasn’t taken further steps to loosen policy settings and has continued to rely on open market operations to manage liquidity conditions. Concerns over future food price inflation and rising house prices may explain the central bank’s reluctance to respond.
• Nevertheless, we still haven’t ruled out a third cut to interest rates this quarter, along with two to three more cuts to the RRR this year to help improve liquidity and shore-up growth.
• We have kept our forecast for China’s GDP growth unchanged at 7¾ per cent in 2012, and are still looking for growth to bottom-out in either the June or September quarters as recent policy stimulus gains more traction.

For further analysis download the full report.

• China Update – August 2012 (PDF, 291kb)