"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 21 September: China to report September 1-year and 5-year loan prime rates (LPR)
• 23 September: Hong Kong to report August consumer price index (CPI)
• 24 September: Hong Kong to report August external merchandise trade statistics
• 25 September: Macau to report August CPI
• 25 September: China to report scale of operations, interest rate for medium-term lending facility (MLF)
• 27 September: China to report August profits of industrial enterprises above the designated size

The coming week will be relatively light in terms of data releases. Friday, 25 September, is a public and market holiday in mainland China and Taiwan for the Mid-Autumn Festival.

For industrial profits, we expect cumulative growth to edge down as of end-August compared to the 17.6 per cent increase for January-July. End-July data point to a broad-based moderation across output, prices, and margins. Value-added industrial production rose 4.5 per cent year-on-year in July, down 0.8 percentage points from June and below the 5.3 per cent cumulative increase recorded in the first seven months. Price support also weakened, with the producer price index (PPI) easing to 3.5 per cent in July from 4.1 per cent in the first half. Meanwhile, the operating revenue margin of industrial firms fell to 9.9 per cent in January-July from 10.7 per cent in the first half, suggesting diminishing contribution from cost improvements. By sector, the profit share of midstream manufacturing increased, however, a pronounced K-shaped divergence persisted: high-end and high-tech industries generated most of the incremental gains, while profitability in traditional segments continued to weaken. Profit generation also remained concentrated in upstream resources and raw materials, while the share attributable to downstream consumer manufacturing stayed low.

The impact of measures to curb “involution-style” price competition since 2025 is becoming increasingly visible in corporate earnings. July’s industrial profits data point to three main channels. First, cumulative PPI inflation improved from -2.6 per cent in December 2025 to 1.8 per cent in July 2026 while factory-gate prices in coal, nonferrous metals, and petrochemicals returned to positive year-on-year growth. Second, profits recovered across both upstream and midstream sectors, utilities remained under pressure from electricity pricing reform, and downstream consumer manufacturing stayed weak. Third, moderate restocking continued, with finished goods inventories rising 9.1 per cent year-on-year. The turn in the inventory cycle has coincided with improving corporate profitability, and the recovery in prices should gradually extend to midstream and downstream sectors.

For monetary policy, we see little likelihood of an adjustment to either the LPR or the reserve requirement ratio in September as China faces weak domestic demand and disinflation fears.

Chinese equities weakened over the past week. As of Thursday, 17 September, the MSCI China Index was down 0.92 per cent, while the Shanghai Composite fell 0.32 per cent. The Shenzhen Component declined 0.46 per cent and the ChiNext Index lost 0.71 per cent. Small- and mid-cap shares outperformed large-cap peers, while growth stocks outperformed value.

Looking ahead, the market is likely to continue trading range-bound as the effects of overseas geopolitical developments and Federal Reserve tightening have yet to be fully absorbed, keeping rapid sector rotation in place in the near term, after which valuation gaps across lower-risk assets are likely to narrow further. Against this backdrop and following the uneven performance of technology stocks since July, the tech sector should return to the centre of market attention, supported by valuation-driven opportunities and resilient industry fundamentals.

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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