Five things to watch in China’s GDP report today

BEIJING • With China’s expansion poised to hold steady, a closer look at the data reveals a more nuanced portrait of the world’s second-largest economy.

Gross domestic product (GDP) expanded 6.8% from a year earlier in the second-quarter (2Q), according to a Bloomberg survey of economists before the report due at 10am today in Beijing. Other data are forecast to show industrial production and fixed-asset investment held up while retail sales edged down.

With deleveraging being the dominant economic theme this year, the reports will show if and to what extent the curbs are starting to bite. With producer-price reflation slowing and property markets cooling, strong exports and resilient consumption will be key pillars of growth this year.

To better gauge China’s economy, here’s what to watch in the reports.

Borrowing Curbs

Broad money supply as a percentage of total economic output, tracked via a Bloomberg Intelligence index, probably pulled back from a near record high in the 2Q.

The ratio of broad money to GDP also shows whether authorities are making progress in efforts to rein in excessive borrowing. Broad money supply growth was the slowest on record in June, signalling policymakers may be seeing some success.

Slower credit expansion may be a drag on growth though, and a gauge of new lending as a share of GDP, which tends to lead the growth cycle, has gone from sharply rising to gently falling in the past two years, according to Fielding Chen, an economist at Bloomberg Intelligence in Hong Kong.

“That casts a shadow on the growth outlook despite recent signs that suggest momentum may have picked up slightly in June,” Chen wrote in a recent report.

Who’s Investing

Fixed investment is projected to hold up, rising 8.5% from a year earlier in the first six months. The breakdown of that growth gives an indication of demand later this year.

The boost from state-owned enterprises may have waned as private spending recovered from a record low last year. Less state dependence signals stronger business confidence.

Property development investment eased in May as sales cooled amid local curbs on buying. That weakness weighs on the expansion by sapping demand for materials like steel, concrete, glass and consumer goods such as home appliances. A sub-gauge of infrastructure spending also has been declining since a peak in the first two months of this year.

Growth Drivers

A supplemental report from the National Bureau of Statistics (NBS) due for release tomorrow will break down contributions to output by industry. Information technology services, commercial leasing services and transportation were the biggest sources of growth in the 1Q.

The output of services, also known as the tertiary sector, has accounted for more than half of the economy since 2015 and likely remained a key support for the 2Q. Real estate brokerage services probably slowed further on purchasing curbs, while financial intermediation may have remained sluggish.

Consumer Pulse

Consumer spending has supported the economy’s transition away from smokestack sectors. Retail sales probably expanded 10.6% in June, according to economist projections.

The sub-gauge of online retail sales may signal more strength in digital commerce, and show consumer demand for specific products such as cars or clothes.

Labour Market

Slower wage gains may weigh on consumption. Disposable income levels included in Monday’s data dump will give a fresh read on the wages of about 280 million migrant workers from rural areas, a lowincome group that’s still a big part of the economy.

The NBS may also comment on the labour market, including an update to the survey-based jobless rate, a better barometer than the official registered rate, although it’s not published on a regular schedule.

The Ministry of Human Resources and Social Security will release its labour demand and supply ratio today, which signals the overall tightness of the job market. — Bloomberg