China's economic activities in Aug. likely to soften again

 Though China's economic data for August are not released, some major indicators of economic activities are likely to moderate again due to the large comparison base and some other headwinds, an economist has said.
Lu Ting, chief China economist with Bank of America Merrill Lynch, said in a latest research note that he expected China's growth to be stabilized after August as the government steps up its growth-supportive efforts.
In July, the world's second largest economy churned out a series of softer-than-expected monthly economic activity data, including manufacturing PMI, industrial production growth, fixed-asset investment and new loans.
For August, Lu predicted the official manufacturing purchasing manager's index (PMI), a key measure of factory activity in China which will be released on Sept. 1, could fall to 51.2 from 51.7 in July.
The HSBC/Markit China flash manufacturing PMI for August, released on Aug. 21, dipped to 50.3 from a final reading of 51.7 in July, making the lowest rate in three months.
Lu, however, maintained that the official PMI isn't likely to decline as much because, unlike the HSBC PMI which is volatile due to its small sample size and the dominance of small enterprises, the official PMI sample covers 3,000 relatively large enterprises.
The economist also predicted that the year-on-year growth of power output in August is likely to be in negative territory for the first time since spring 2009.
The power output, a broad measure of China's economic vitality, declined 8.1 percent year-on-year in the second ten days of August after falling 0.1 percent year-on-year in the first ten days of August.
As power output is highly correlated with economic activity, markets could be concerned that economic activity could turn much worse in August.
"We believe that power use and output are heavily impacted by weather, and the summer last year was unusually hot while the summer this year has been quite cool."
With some back-of-the-envelope estimation by adjusting for power use by the service sector and household, Lu expected year-on-year growth of power use by the manufacturing sector to be in positive territory in August.
The industrial production growth, which is one of the best leading indicators for quarterly year-on-year GDP growth, could be around 8.7 percent in August, according to Lu.
The National Bureau of Statistics is scheduled to disclose figures about the industrial production, fixed-asset investment and retail sales on Sept. 13.
In addition, Lu said China's new loans and total social financing (TSF) are expected to recover in August, following the very low reading of money and credit growth in July.
Demand for medium-to-long-term loans on infrastructure and social housing is set to pick up in August thanks to the government's push and the China Development Bank's special funding for social housing, he added.