"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 15 September: China to report August industrial production for firms above designated size
• 15 September: China to report August energy production
• 15 September: China to report August fixed asset investment levels
• 15 September: China to report August home sales
• 15 September: China to report August total retail sales (TRS) of consumer goods
• 15 September: China to report August housing price index
• 17 September: Hong Kong to report July unemployment and underemployment statistics
• 17 September: Hong Kong to report July external merchandise trade volumes

August economic activity data are in focus next week in China, with retail sales and fixed asset investment numbers likely to underline the continued divergence between resilient services demand and weak momentum for goods and investments.

For consumption, we expect retail sales to rise by 0.6 per cent year-on-year in August, unchanged from July. Summer-related spending continued to provide support while services consumption remained on an improving trend. Though, persistent weakness in goods demand is likely to keep overall retail sales growth subdued.

Services consumption offered a more constructive signal: leisure, entertainment, and tourism activity relatively firm. In August, the business activity index for culture, sports, and entertainment stayed above 54 per cent for a second consecutive month. The corresponding indices for railway and air transport were both above 52 per cent, while those for scenic-area services and accommodation remained around or above 52 per cent for the second month.

By contrast, goods consumption remained weak. Nationwide passenger vehicle retail sales totalled 1.55 million units in August, down 24 per cent year-on-year as elevated oil prices continued to weigh on households’ willingness to purchase petrol-powered vehicles. Housing-related consumption also stayed under pressure, while the fading marginal impact of policy support plus a high base are likely to keep purchases covered by the trade-in programme in contraction.

For fixed asset investment, we expect the year-to-date decline to reach 7 per cent in August. Infrastructure investment is likely to remain weak: the issuance of new special-purpose bonds for project construction improved from July but did not accelerate from a year earlier. The National Investment Promotion Work Conference may provide some support, although near-term indicators remain soft. The construction PMI fell to 46.9 per cent in August, its lowest level in nearly a decade, while cement and rebar prices declined.

Real estate investment should stay muted. Recent reform measures have focused mainly on longer-term institutional development. In the near term, developers’ access to credit and willingness to invest remain weak. Over time, the measures should help ease cash-flow pressures and contain risks associated with non-performing assets.

Manufacturing investment may improve marginally. PMI data on new orders rose by 2.1 points to 50.6 per cent in August, pointing to a modest recovery in demand. Corporate expectations softened slightly, however, with the index for production and business activity expectations falling by 0.3 points to 53.8 per cent.

Chinese equities were mixed over the past week. As of Thursday, 10 September, the MSCI China Index was down 2.54 per cent, while the Shanghai Composite rose 0.11 per cent. The Shenzhen Component gained 0.74 per cent and the ChiNext advanced 1.58 per cent. Small- and mid-cap shares slightly outperformed large-cap peers, while growth stocks modestly outperformed value.

Looking ahead, the A-share market is likely to trade range-bound as rapid sector rotation continues. The combination of an uncertain macroeconomic backdrop and a lull in industry-specific narratives have left markets without a clear anchor, intensifying competition among existing capital while preventing incremental inflows from converging towards a unified direction. As such, fundamentals are likely to play a greater role in pricing. In an environment of relatively tight macro liquidity and a market increasingly driven by earnings, strategies focused on sectors with visible growth and earnings support should remain better positioned.

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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