China: February data expected to show robust growth even as debt worry looms

File photo. Photograph:( Reuters )

Reuters Beijing, China Mar 06, 2017, 08.00 AM (IST)

A flurry of data in coming weeks is expected to show China posted solid economic growth in February, even as the government trimmed its growth target for the year to focus on containing the risks from a rapid build-up in debt.

Export and import growth is expected to hit multi-year highs, according to Reuters polls, adding to views that the global economy are shifting into higher gear and giving China's policymakers more confidence to press ahead on oft-delayed structural reforms.

China's first-quarter economic growth could accelerate to 7 per cent year-on-year, from 6.8 per cent in the last quarter, economists at OCBC wrote in a note on Monday, while adding the pace may ease beginning in spring.

Reflecting continued strength in its manufacturing sector, and particularly heavy industry, China's producer price index (PPI) likely rose 7.7 per cent from a year earlier, the sharpest gain in nearly 9 years.

China's iron ore and steel prices have been rallying for a year, fueled by a construction boom, though worries are growing over rising inventories. The country's insatiable demand for resources has helped spur an inflationary pulse in commodities worldwide.

While factory surveys show manufacturers have been able to pass on some of the higher production costs by raising prices of their goods, there has been scant evidence of it flowing through to consumer inflation yet.

Consumer prices likely rose 1.7 percent in February, easing from a 2.5 percent increase in January as food prices normalized following Lunar New Year celebrations. Beijing is targeting consumer inflation at 3 percent this year, unchanged from 2016.

China's foreign exchange reserves likely fell for an eighth straight month, though the decline was seen to be marginal as a weaker US dollar and tighter restrictions on taking money out of the country dampened pressure from capital outflows.

FX reserves likely dipped to $2.973 trillion, from $2.998 trillion in January, when reserves fell below the closely watched $3 trillion level for the first time in nearly 6 years.

While that level is not seen as a firm "line in the sand" for Beijing, doubts are growing over how much longer authorities can afford to defend both the currency and its reserves if the U.S. dollar resumes its upward trend.

China announces foreign exchange reserves on Tuesday, followed by trade and inflation data on Wednesday and Thursday, respectively, while loan and money data is expected anytime from March 10-15.

China will release activity data on March 14 for industrial output, retail sales and fixed asset investment. The data will combine January and February in a bid to smooth out seasonal factors caused by the timing of the long Lunar New Year holidays, which began in late January this year but fell in February last year.

Industrial output is expected to have risen 6.2 per cent for Jan-Feb, picking up from 6 per cent in December, while fixed asset investment is likely to grow 8.2 per cent, edging up from 8.1 per cent in December.

Retail sales growth is expected to have cooled to 10.5 per cent for Jan-Feb, from 10.9 percent in December.

Car sales have been hit particularly hard as a tax cut was rolled back. General Motors (GM.N) reported on Monday that sales in the first two months fell 14.8 per cent on-year.

Booming Exports, Imports

Trade data is expected to show a further improvement in demand at home and abroad.

Driven largely by purchases of coal, iron ore and crude oil, imports likely rose 20 per cent on-year, the highest since January 2013, and accelerating from 16.7 per cent growth in January, though the February readings may have been distorted by the long holiday, which impacts production and port handling.

Shipments from the world's largest exporter are seen rising 12.3 per cent in February, the highest since September 2014. Exports rose 7.9 per cent in January.

China's trade surplus is forecast to have dropped to $25.75 billion in February, versus January's $51.35 billion. The surplus, long an irritant with some of its major trading partners, has come under fresh scrutiny amid fears of rising US trade protectionism under new President Donald Trump.

Lending seen slowing

While China's trade data often steals the headlines, loan and money supply figures may come under the closest scrutiny by investors after Premier Li Keqiang said on Sunday that the economic growth target would be cut to 6.5 per cent this year to give policymakers more room to focus on reforms and erect a "firewall" against financial risks.

Authorities had made similar pledges to tackle debt risks last year, even as banks extended a record amount of credit.

Still, new bank lending likely eased sharply to 920 billion yuan ($133.40 billion) in February from January's 2.03 trillion, which was the second-highest monthly tally on record.

Chinese banks usually "front load" loans early in the year after the government renews their credit quotas, competing fiercely to maintain market share and to lock in higher-quality borrowers as soon as possible.

Growth in outstanding loans likely inched up to 12.7 per cent on-year in February, while M2 money supply likely rose 11.4 per cent, from 11.3 per cent in January.

Beijing has the target for broad money supply growth this year to around 12 per cent from about 13 per cent for 2016.

With the economy on more stable footing, China's central bank has moved cautiously to a tightening policy bias in recent months to contain capital outflows and rein in debt risks.

It raised short-term interest rates modestly in January and February and is expected to do so again in coming months, but is seen keeping its benchmark policy lending rate steady through at least mid-2018, according to a separate Reuters poll.