China: Fundamentals weakened further in August – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest set of results from the Chinese data.

Key Quotes

“China’s economy slowed more than expected in August, weighed by local COVID-19 containment measures, weakening domestic demand and tightening regulations on some sectors including technology, gaming, private education as well as measures to curb property price gains.”

“Retail sales, industrial production and fixed asset investment (FAI) were all below Bloomberg’s consensus expectations in August while the nationwide surveyed jobless rate remained unchanged at 5.1% as expected.”

“With economic data underperforming in both July and August, it appears that the downside risk to growth could be larger than expected in 3Q21. We have forecast China’s GDP growth to moderate to 5.7% y/y in 3Q21 and then to 5.1% y/y in 4Q21 (1Q21 at 18.3% and 2Q21 at 7.9%).”

“As such, policymakers may have to step up their monetary and fiscal policy support. We retain our call for another 50 bps cut to banks’ reserve requirement ratio (RRR) in 4Q21. This will provide banks with increased ability to boost lending and make repayments to large amount of medium-term lending facility (MLF) loans maturing this year without having to cut the benchmark loan prime rates (LPR).”