China data dump to show investment recovery continuing in 2019

By BLOOMBERG

BEIJING • China’s first batch of major official indicators this year are forecast to show that an investment recovery that began in mid-2018 is set to continue, but the economic slowdown and trade war are still undermining factory output and consumption.

Official releases due today will show that measures since last year to boost infrastructure constructions have probably started having an effect, with a slight strengthening seen in investment.

However, industrial output growth is forecast to have slowed in the first two months of this year versus the December pace, while retail sales remained stable, according to economists surveyed by Bloomberg.

The data will be released during the final days of the annual national legislature meeting, at which the government lowered its growth target, unveiled a record amount of tax cuts, increased support for smaller firms and also reiterated that a debt fuelled investment boom is not on agenda.

There was no January data as the National Bureau of Statistics combines readings for the first two months of each year to smooth out volatility from the Chinese New Year holiday, when factories and businesses across the country shut down.

“Investors will have a better idea on the economy in 2019” after the release, Larry Hu, head of China economics at Macquarie Securities Ltd in Hong Kong, wrote in a note.

“It’s too early for policymakers to escalate stimulus at this stage.”

Here’s what today’s data will show, according to those surveyed:

• Industrial output rose 5.6% from a year earlier in the first two months, versus 5.7% in December.
• Retail sales expanded 8.2%, unchanged from December’s growth.
• Fixed-asset investment in urban areas rose 6.1% from a year earlier, higher than the 5.9% pace in the whole of 2018.
• The jobless rate, which hovered around 5% in 2018, will also be released.

The nation’s economic growth is in a long-term slowdown and is forecast to expand 6.2% this year, after a 6.6% growth in the previous year.

That’s within the government’s target range of 6% to 6.5%. The trade war and a global slowdown have hit trade performance, with exports dropping almost 5% in the first two months from the same period last year, and shipments to the US down almost 15% over the same period.

There’re signs that the two nations are making progress on a deal, but still there’s no certainty for companies about if, or when tariffs might be lifted. While top negotiators discussed key questions over wording of trade documents and arranged for the next stage of talks in a Tuesday call, later in the day US Trade Representative Robert Lighthizer declined to say whether the administration would roll back US tariffs if a deal was reached.

Even so, bets on a positive outcome have fuelled investor sentiment, with the yuan now Asia’s second best-performing currency this year, and the benchmark Shanghai Composite Index up more than 20% this year.

That market confidence was the main factor in the pickup seen in Bloomberg Economics’ aggregated reading of early indicators, although the official Purchasing Managers’ Index of factories contracted further in February.

Separately, China’s biggest default scares of 2019 have taken bondholders on some wild rides, underscoring both the risks and the opportunities for investors as more of the nation’s companies struggle to repay debt.

At least three large Chinese borrowers — Qinghai Provincial Investment Group Co Ltd, China Minsheng Investment Group Corp and Beijing Orient Landscape & Environment Co Ltd — missed bond-payment deadlines last month only to come up with the cash shortly thereafter.

A fourth issuer, Hong Kong Airlines Ltd, saw its dollar bonds plunge on repayment concerns in January, but made good on a maturing note after reportedly securing help from China Development Bank. — Bloomberg