"Next week in China" fra Lundgreen's Capital

Major Data Releases:

• 9 November: China to report October consumer price index (CPI)
• 9 November: China to report October producer price index (PPI)
• 10 November: China to report October external trade balance, export and import growth rates
• 13 November: China to report October M0, M1 and M2 money supply growth rates
• 13 November: China to report October new renminbi loans
• 13 November: China to report October total social financing (TSF)

China’s macroeconomic calendar turns busier in the second week of November with a series of data releases providing further insight into inflation dynamics and financing conditions.

October inflation is expected to highlight the divergence of subdued consumer prices and firmer industrial prices. We expect CPI inflation to ease to 0.8 per cent year-on-year from 0.9 per cent in September, with prices unchanged month-on-month. Conversely, PPI inflation is expected to rise to 5.2 per cent from 5 per cent, although monthly price growth is likely to moderate to 0.4 per cent from 1.2 per cent.

Consumer spending has remained subdued but stable. Purchases ahead of the 1-7 October National Day Golden Week travel provided some support, although frontloading prior to the holiday diluted its concentrated impact. Continued declines in pork prices weighed down food prices while higher fuel prices constrained spending on travel and discretionary goods.

Industrial prices found support in elevated crude oil prices amid recurring geopolitical disruptions in the Middle East. Seasonal restocking during the September-October construction peak also contributed to a modest recovery despite continued weakness in property- and infrastructure-related activities. However, the widening gap between producer and consumer prices underscores persistent pressure on margins. Weak end-consumer demand continues to limit cost pass-through, leaving the recovery in midstream and downstream profitability slow and incomplete.

Financing data are expected to show stronger TSF growth alongside continued weakness in bank lending. We expect new social financing worth approximately RMB 1.6 trillion (USD 239 billion) in October, around RMB 784.3 billion more than a year earlier to lift year-on-year growth in outstanding credit to around 7.3 per cent. By contrast, RMB loans are expected to record a net decline of RMB 200 billion (USD 30 billion) with new lending settling below the year-ago level. This would bring year-on-year growth in outstanding loans down to approximately 4.7 per cent.

Money supply growth is also expected to moderate. We forecast October M2 growth of 7 per cent and M1 growth of 3 per cent, both 0.2 percentage points slower from September. Data show that market interest rates remained low while corporate bond financing held up well. However, the recovery in underlying financing demand remains incomplete while improvements in lending components have been gradual, reflecting greater emphasis on quality amid a deceleration in credit growth.

A closer look at borrowers reveals constraints in corporate and household demand. Weak end demand in traditional manufacturing plus cautious capital expenditure plans limit medium- and long-term corporate borrowing. Meanwhile, the prolonged property market recovery weighs on mortgage demand, with new medium- and long-term household lending remaining below year-ago levels. Voluntary household deleveraging has yet to reverse, leaving on-balance-sheet lending as the main constraint for a broader recovery in financing activity.

Chinese equities rebounded strongly over the past week after recent weakness. As of Thursday, 5 November, the MSCI China Index gained 7.1 per cent, while the Shanghai Composite rose by 2.53 per cent. The Shenzhen Component advanced 5.88 per cent, and the ChiNext Index climbed 6.35 per cent. Small-cap shares generally outperformed mid- and large-cap peers while growth stocks outperformed value. A-share valuations offer an increasingly attractive entry point for long-term investment following the recent sell-off. However, near-term volatility is likely to persist as the technology sector absorbs selling pressures and liquidity rebalances across asset classes, and as overseas uncertainties remain unresolved.

Domestic and international economic data points due in early to mid-November should bring greater clarity. As key uncertainties recede, medium-term capital could return to the market in stages. Together with continued policy support, this could provide a foundation for a valuation-driven recovery in A-shares.

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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