* Show me the money
Capital outflows from EM and the recent global equity market stress have been partly due to
investors’ fears of a sharp fall in Chinese activity and concerns over the ability of Chinese
policymakers to manage the economy. As we highlighted yesterday, even in China, not everything
is bad, with retail sales growth showing resilience while property sales have accelerated. On the
policy front the Chinese state continues to wield its influence over large parts of the real economy
while the capital account is far from open. But investors may need to see improving economic data
or bold policy action to be reassured on the state of the Chinese economy.
* How to read the next releases of economic data
In the first part of this report, we provide insights on how to interpret upcoming Chinese data. The
most important will be the Manufacturing PMIs. Two successive increases in manufacturing PMIs,
with a reading above 49 on October 23rd, would be a positive. There is, however, little hope of a
positive surprise on industrial production until November given the impact of the Tianjin explosion
and the current shutdown of plants around Beijing (athletics championships and military parade). In
contrast, the trade balance may rise significantly given the drop in commodity prices. A stabilisation
of export growth would be needed for a positive read of this data.
* What to expect from Chinese authorities
We must expect the unexpected on the policy front as President Xi’s agenda is mainly driven by
political and geostrategic objectives rather than a consistent economic reform plan. Yesterday’s cut
in RRR to provide more liquidity to the banking sector shows, however, that the Chinese authorities
want to send a clearer supportive message. In our view, the most positive signal would be a clear
acceleration of the infrastructure programme through indirect financing of local government bonds
by the PBOC and incentives for local authorities to invest as their confidence to spend has been
hurt by the anti-corruption campaign. The high profile meeting in October (5th plenary session of
the 18th Central Committee) is also a key event to monitor as new national projects could be
announced.