"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 3 August: RatingDog to report China’s Manufacturing PMI for July
• 5 August: RatingDog to report China’s Services PMI for July
• 6 August: Taiwan to report July Consumer Price Index (CPI)
• 6 August: Taiwan to report July Producer Price Index (PPI)
• 7 August: China to report July external trade balance
• 9 August: Chian to report July CPI
• 9 August: China to report July PPI

Major data releases for China markets will pick up as August begins, with prices and trade figures among key indicators to watch.

For prices, we expect China CPI to pick up moderately from June’s 1 per cent, while month-on-month movement should remain limited. Inflation was broadly stable in the first half within a moderate range. The month-on-month decline widened to 0.3 per cent in June, mainly due to three factors: a seasonal increase in agricultural goods that pushed food prices lower; weaker travel demand during the June off-season, reducing airfares, hotel accommodation and travel agency fees; and the pass-through from lower international gold and oil prices, which dragged down industrial costs. Core CPI, excluding food and energy, rose 1.2 per cent in the first half, slightly above headline CPI. This suggests that services prices, including medical care and some cultural and entertainment services, have continued to recover gradually. However, endogenous demand is only bottoming out slowly and is not yet strong enough to generate broad-based inflation pressure.

Producer prices are the main highlight in January-June, but are likely to edge down again. PPI rose by 1.5 per cent year-on-year in the first half and continued to recover after turning positive in March to reach 4.1 per cent in June. The improvement reflected better supply-demand conditions in upstream mining, raw materials and selected high-tech manufacturing sectors, including AI computing-related equipment and green energy transition materials. It also pointed to some recovery in infrastructure and manufacturing demand. However, PPI unexpectedly fell by 0.3 per cent month-on-month in June amid lower international crude oil prices as geopolitical tensions eased. Domestic consumer goods prices also turned negative month-on-month, indicating that end-consumer demand remains weak and that some midstream and downstream firms still face difficulty passing on costs to customers.

The key risk signal is the widening PPI-CPI “scissors gap.” In June, the rise in producer prices exceeded CPI growth by 3.1 percentage points while the first-half average for PPI was also above CPI. This implies faster profit improvement in upstream raw materials and mining but continued margin pressure for processing, assembly and consumer goods manufacturers. If final demand remains soft, weak price transmission may delay the pace of inventory restocking. Carry-over effects should support PPI in the near term, with year-on-year growth likely to reach a local high in July-August before easing gradually. CPI should remain moderate in the second half, supported by stabilizing pork prices and a gradual recovery in services consumption.

Chinese equities weakened over the past week. As of Thursday, 30 July, the MSCI China Index diverged to rise by 3.43 per cent, while the Shanghai Composite was down 0.25 per cent. The Shenzhen Component and ChiNext indices fell by 3.55 per cent and 6.79 per cent, respectively. Small caps slightly outperformed mid- and large-cap peers, while value outpaced growth.

Looking ahead, recent market-stabilising signals like shareholding increases and buybacks, together with easing liquidity pressure, suggest that the market now has a stronger foundation to form a near-term bottom. Negative risk events appear to have been largely reflected in the recent sharp declines and the downturn in risk appetite is likely closer to a reversal. As a result, the probability of a broad rotational recovery in August has increased, though confirmation from liquidity conditions and earnings expectations will be crucial.

This piece has been co-produced with Yiyi Capital Limited in Hong Kong, a China specialist and a part of a global financial services group.

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