China's July Industrial Output And Investment Likely Rose Steady

China's investment and industrial production are likely to have expanded steadily in July as Beijing's tightening measures staunched a large pickup in growth.

But economists warned the growth could be faster than expected following the strong economic data issued so far this month. The National Bureau of Statistics is expected to issue data Wednesday showing that industrial output in July rose 19.4% from the same month last year, matching June's gain, according to the average forecast of 10 economists surveyed by Dow Jones Newswires. The bureau will likely say Thursday that urban fixed-asset investment growth rose 26.9% in the first seven months from the January-July period last year, according to the average forecast of eight economists in a Dow Jones Newswires poll. That would be slightly faster than first-half growth of 26.7%. Economists expect steady growth in both indicators following Beijing's tightening moves this year, which included three interest-rate hikes and six increases in the reserve ratio for banks, with the latest reserve ratio hike to take effect Wednesday. These measures have made it more costly for firms to finance new plants and crimped demand for capital goods. A decline in the Purchasing Managers Index in July supports the view that industrial production growth likely slowed last month, said Sun Mingchun, an economist with Lehman Brothers. The China Federation of Logistics and Purchasing said earlier this month its PMI fell to 53.3 in July from 54.5 in June, with the output component declining more sharply to 55.7 last month from 59.7 in June. "Overall, the PMI changes are pointing toward slight moderation in economic growth," the federation's PMI analyst Zhang Liqun said at the time. But Isaac Meng, a Beijing-based economist at BNP Paribas, said fast lending and money-supply growth in July could mean that investment growth will be faster than expected, while stronger-than-expected export growth last month could bolster an expansion of industrial output. "We expect the tightening measures to take effect, though the risks are definitely on the upside," he said. Growth of China's broadest measure of money supply, M2, accelerated to 18.48% at the end of July from 17.1% at the end of June. China also posted a US$24.36 billion trade surplus in July, the country's second-highest after June's record of US$26.9 billion. Export growth surged to 34.2% from 27.1% in June, potentially encouraging local firms to make more goods to sell abroad.