"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 7 September: China to report August foreign exchange reserves level
• 8 September: China to report August trade balance
• 8 September: China to report August import and export year-on-year growth rates
• 9 September: China to report August consumer price index (CPI)
• 9 September: China to report August industrial producer price index (PPI)
• 10 September: China to report August M0, M1 and M2 money supply growth rates
• 10 September: China to report August total social financing (TSF)
• 10 September: China to report August new renminbi loans

This upcoming week will have the spotlight on August inflation and financing data. The key question is if improving upstream prices and seasonal credit demand can point to early signs of stabilisation despite underlying momentum remaining soft.

For prices, we expect August inflation to rise to 0.9 per cent year-on-year and PPI to rise by 3.2 per cent. The CPI rebound will be driven by a recovery in food prices, particularly pork and vegetables. Higher domestic refined oil prices also provided support, while the impact from gold prices was mixed. Looking ahead, tentative signs of stabilisation in pork prices, together with the approach of the Mid-Autumn Festival and National Day holidays, should allow food prices to recover moderately. We expect headline inflation to be around 1 per cent in September and 0.8 per cent in October.

PPI offers a more constructive signal, but not yet a broad demand recovery. In August, the ex-factory price index rose by 2.6 points to 50.4 per cent while the purchase price index for major raw materials increased by 3.4 points to 56.6 per cent. High-frequency data also point to firmer upstream prices, with average crude oil spot prices higher, rebar prices slightly lower, and copper and coking-coal futures prices rising sharply. Even so, the second-round transmission from higher oil prices to producer prices appears weaker than in previous cycles. We expect PPI inflation to ease to 3.1 per cent in September and 2.8 per cent in October.

Credit data are likely to show seasonal improvement from July, but the underlying picture should remain subdued. The manufacturing PMI production and new-orders indices both improved in August yet the headline PMI stayed below the expansion-contraction threshold, while construction and services activity remained muted. Real credit demand is yet to show clear repair, leaving bill financing as an important support for credit growth. We expect new RMB loans to decline to around RMB 500 billion (USD 74.4 billion) in August, with financing growth to decelerate from 5.1 per cent in July to around 5 per cent in August. Household lending may turn positive month-on-month and increase slightly year-on-year, while corporate credit is likely to rebound from July but remain lower than a year ago. For broader financing, we expect new loans to reach around RMB 2.13 trillion (USD 317 billion) in August, about RMB 440 billion (USD 65.5 billion) lower than a year earlier. Outstanding TSF growth is likely to edge down to around 7.3 per cent from 7.4 per cent previously. Government bond issuances should remain the main support for aggregate financing, although it may still decline year-on-year.

Chinese equities weakened over the past week. As of Thursday, 3 September, the MSCI China Index was down 2.21 per cent, while the Shanghai Composite fell 0.26 per cent. The Shenzhen Component lost 2.35 per cent and the ChiNext declined 3.27 per cent, with value shares outperforming growth stocks across indices.

Recent AI-related headlines have reinforced expectations on rapidly growing demand for computing power. In a market characterised by rapid rotation, the main beneficiaries have largely come from low-valuation strategies. However, shares chosen through a P/B-ROE (price-to-book ratio and return on equity) strategy have shown a clear advantage, while momentum stocks have been the most vulnerable. This suggests that, under high rotation, opportunities may increasingly be found in undervalued shares with visible earnings support.

The premiere of China’s first AI-produced long-form drama on a primetime TV slot, Hou Xiyou Ji (Beyond Wukong), also helped strengthen sentiment toward AI-related applications. It uses Seedance technology to generate visuals and character performances without live actors. The launch marks a further step in the integration of AI-generated content into mainstream production, and supports both the film and television sector and upstream AI segments, including cloud computing and computing power.

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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