Overview:

• Most of China’s monthly indicators were weaker in July – albeit many coming back to trend (particularly industrial production and retail) after strong growth in June. Nothing in this month’s release changes our views around the Chinese economy – which is expected to grow by 6.7% in 2017 (the same rate as 2016), before slowing to 6.5% in 2018 and 6.25% in 2019.
• Growth in China’s industrial production slowed in July – down from a two and a half year high in June – back to the trend rate for the past three years. Crude steel output surged again in July – up to 74.0 million tonnes, the second straight month of record output.
• China’s fixed asset investment grew a little slower in July, with a softer trend in both real estate and manufacturing. New construction starts slowed significantly in July, although it is too early to tell if policies designed to cool conditions in the real estate and construction sector are impacting. We have been expecting construction activity to slow for some time, but we are cautious not to read too much into July’s relative weakness – particularly given the strength in China’s steel output. That said, should it be sustained, Chinese steel demand and iron ore consumption would be likely to fall in coming months.
• China’s trade surplus increased further in July – up to US$46.7 billion (compared with US$42.8 billion previously). Both exports and imports were weaker than the levels recorded in June. Price trends in commodity markets have had a major influence on China’s trade values – with the RBA Index of Commodity Prices rising by 17% yoy (down from 22% in June). Commodity prices have generally declined since the start of the year, with the RBA index down around 14% since the cyclical peak in February – meaning that the positive price effects on China’s trade values are likely to be far more modest in coming months.
• Retail sales were somewhat weaker in July – with nominal sales growth at 10.4% yoy (compared with 11% previously). Consumer confidence recovered in June, with the index at 113.3 points, just off the near-decade long high recorded in April (113.4 points).
• Chinese monetary policy has remained stable in recent months – with the 7 day Shanghai Interbank Offered Rate (Shibor) trading in a range of almost 11 basis points since the start of July. At the time of writing, the Shibor has edged close to 2.9%, which  represents around 40 basis points of tightening since the start of the year, but it is essentially unchanged since late April. We continue to expect some modest tightening in coming months, albeit concerns around the high levels of corporate debt, and the capacity of firms to service said debt, will make the PBoC cautious in its approach.

For further details, please see the attached document:

• China’s economy at a glance: August 2017 (PDF, 298kb)