Natixis Asia Pacific Chief Economist Alicia Garcia Herrero recently commented:
China can reach its 2025 growth target but with even more stimulus and the second half will be tougher. All in all, while the Chinese economy has a greater likelihood of meeting the governments growth target, there are significant uncertainties down the road. Despite foreseeable headwinds from trade friction and persisting deflation, the government does have more bullets for further stimulus if needed.
Market Outlook: Trade Talks and Data Watch
While recent economic indicators have pointed to a loss of momentum, trade developments and upcoming private sector PMI numbers on August 31 may ultimately drive sentiment.
On Tuesday, August 26, reports surfaced of Chinas trade negotiator, Li Chenggang, planning to visit Washington to resume trade talks. Progress toward a US-China trade deal, reducing US tariffs on China, could boost external demand and ease price pressures, potentially raising industrial profits.
Augusts NBS Manufacturing PMI number will indicate whether the manufacturing sector contracted more sharply. Economists expect the NBS Manufacturing PMI to increase from 49.3 in July to 49.7 in August. An increase above the neutral 50 level may ease concerns about Chinas economic outlook. On the other hand, a lower reading may push Beijing into rolling out meaningful measures to bolster the economy.
Markets React to Softer Drop in Industrial Profits
The Hang Seng Index reacted to the July data, briefly climbing to a high of 25,653 before falling to a low of 25,565. At the time of writing, the Hang Seng Index was up 0.26% to 25,592. Meanwhile, Mainland Chinas CSI 300 and the Shanghai Composite Index were down 0.05% and 0.18%, respectively.
Despite the softer fall in industrial profits, uncertainties remain over the effectiveness of Beijings stimulus measures and upcoming trade talks.
