Industrial Sector Improved, But Downside Risk Remains

Economic Research	01 September 2016
China
Economic Highlights
Industrial Sector Improved, But Downside Risk Remains China’s manufacturing PMI returned to expansionary territory in Aug 2016 and beat both our and market expectations amid growing new orders. But we still do not believe industrial sectors have already bottomed out, given pressure from ongoing supply-side reforms. Looking forward, we hold a cautious stance for the recovery of China’s industrial sectors, due to headwinds from 1) more tightening measures in property market, 2) speed-up of supply-side structural reform, and 3) mounting external uncertainties. At this juncture, we do not expect more aggressive monetary loosening in the near-to-medium term, given calls to curb asset bubble. The government will rely more on targeted fiscal stimulus to cushion the economic moderation. We expect to see rising scale of fiscal deficit, more financial supports from policy banks and accelerating approvals of PPP projects in 2H16, with more focuses on infrastructure improvement areas.  Economist:  Zhang Fan| +8621 6288 9611 ext 105
To access our recent reports please click on the links below: 09 Aug: Mild Inflation, But No Further Easing Of Monetary Policy Envisaged 08 Aug: Another Set of Weak Trade Data With No Fundamental Improvement 01 Aug: More Targeted Stimulus Expected To Help Weakening Industrial Sector 18 July: Downside Pressure Persists 13 July: Mounting Uncertainties Undermine China’s Trade Conditions 11 July: Severe Flooding Brings Near-Term Upside Risk For CPI 01 July:  Slower Manufacturing PMI As Demand Weakens 27 June: Brexit: Limited Impact On China, But More Challenges On Trade Terms