China June data to show steady growth, debt crackdown dims outlook

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FILE PHOTO: A woman walks past residential buildings in Beijing

BEIJING (Reuters) – A raft of Chinese data in coming weeks is expected to show steady growth in the world’s second-biggest economy, but government measures to rein in the housing market and debt risks are likely to drag on activity over the next few quarters.

Many analysts say Beijing’s deleverging campaign will pressure growth as the property sector cools in response to policy curbs, even as top leaders have pledged to maintain economic stability ahead of a key party meeting later this year.

“We expect June’s data release to show overall steady growth with industrial production momentum maintained,” economists at UBS said in a research note.

“Slower credit growth and higher funding costs due to supervisory tightening are expected to have an effect on fixed-asset investment and activities later in the year.”

China’s industrial output is seen up 6.5 percent in June from a year earlier, matching the rise in May, according to a Reuters poll of 34 economists.

Retail sales were expected to grow 10.6 percent, easing slightly from a 10.7 percent rise in May, while fixed-asset investment was predicted to increase 8.5 percent in January-June from a year earlier, versus a rise of 8.6 percent in the first five months, the poll showed.

Authorities have tightened rules to force banks to deleverage – as part of steps to control debt risks, pushing up money market rates that have started to spill over into the real economy.

Moody’s Investors Service downgraded its credit rating in May, saying it expects the country’s financial strength will erode in coming years as growth slows and debt continues to rise.

Policy insiders say the central bank will hold off on further monetary policy tightening and could even slightly loosen its grip in the coming months to support economic growth and job creation.

China’s exports are seen up 8.7 percent in June from a year earlier, while imports are set for a 13.1 percent rise, according to the Reuters poll, producing a trade surplus of $42.4 billion.

China’s exports rose a stronger than expected 8.7 percent in May as global demand improved, while imports jumped 14.8 percent despite falling commodity prices.

GDP PUZZLE

China will release second-quarter gross domestic product(GDP) on July 17, along with June industrial output, retail sales and January-June fixed asset investment.

Analysts are awaiting a few other June data releases before fine-tuning their April-June GDP forecasts, though some expect it will be slightly weaker than the solid first quarter pace of 6.9 percent.

Both the official and private factory surveys painted a robust picture for June thanks to stronger demand, though even here signs of stress were evident in median and small firms.

China’s producer price index (PPI)) is tipped to rise 5.5 percent in June from a year earlier, flat from May when factory gate inflation eased for the third straight month on tumbling raw materials prices.

The consumer price index (CPI) is seen up 1.5 percent year-on-year in June, also matching that in May, when consumer inflation quickened from April’s 1.2 percent.

Beijing is targeting consumer inflation at 3 percent this year, unchanged from 2016.

Besides the campaign to reduce high levels of debt across the economy, authorities have also been busy trying to stabilize the yuan by curbing capital outflows.

That seems to have paid off with the currency pushing higher against the dollar in recent months. And China’s foreign exchange reserves are expected to edge up in June to $3.06 trillion, rising for a fifth consecutive month as capital curbs and a weakening dollar helped staunch money outflows.

China is due to announce foreign exchange reserves data on Friday, followed by inflation and trade data on Monday and Thursday respectively, while loan and money data is expected anytime from July 10-15.

LOANS SEEN UP AMID SHADOW BANKING CRACKDOWN

Loan data will also be closely watched for signs of whether the economy continued to build up more debt, amid signs that banks have shifted more credit back onto their books in response to the shadow financing clampdown.

Chinese banks are seen extending 1.2 trillion yuan ($176.47 billion) in new loans in June, up from 1.11 trillion yuan in May.

Combined trust loans, entrusted loans and undiscounted bankers’ acceptances, which are common forms of shadow banking activity, fell sharply to 28.9 billion yuan in May from 177 billion yuan in April, according to Reuters calculations based on central bank data.

(Reporting by Kevin Yao and Shaloo Shrivastava)

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