Mild recovery expected, no change in economic policy

A series of key macroeconomic data for November will be released starting on Sunday.

We expect the numbers to show increasing signs of a mild recovery in China's economy, with growth indices rising further on supportive policy and the improving business outlook. We forecast that industrial production growth picked up to 9.9 percent year on year in November from 9.6 percent in October on increasing production of key products like cement and steel. Nominal fixed asset investment growth is likely to accelerate to 22.6 percent year on year in November, versus 22.2 percent in October.

Infrastructure investment should continue to lead the way, with strong growth momentum supported by previous policy stimulus. Manufacturing investment should be underpinned by improving market sentiment. We expect retail sales growth to have inched up to 14.6 percent year on year in November from 14.5 percent in October as incomes and new home sales continue to rise.

Inflation pressure should remain subdued but gradually gather momentum. We look for Consumer Price Index inflation to have edged up to 2.0 percent year on year in November from 1.7 percent in October. Pork prices have stabilized, while vegetable prices continued to rise in November. In addition, the base effect will turn less favorable in November and start to exert upward pressure on the year on year number.

We therefore expect CPI inflation to resume an upward trend, with clearer upside moves in 2013. We expect the pace of decline in the Producer Price Index to have slowed to 1.8 percent year on year in November from 2.8 percent in October on stabilizing prices of mining products and other raw materials, indicating less upstream deflationary pressure.

Trade data, due out early next Monday, is likely to show that both export and import growth moderated in November, to 10.0 percent year on year and 2 percent year on year, respectively (from 11.6 percent and 2.4 percent in October) owing to an unfavorable high base in 2011. This is likely to result in another big trade surplus of around US$28.8 billion for the month.

Credit growth should remain supportive due to the rollout of infrastructure projects and the improving manufacturing-sector outlook. We expect new loans extended in November to have totalled around 520 billion yuan (US$83 billion), while non-credit financing continued to increase. We look for money supply growth to remain at around 14 percent year on year.

The latest meeting of the Central Politburo provided a preview of the central government's economic policy stance for 2013. The focus is on maintaining the continuity and stability of economic policy in 2013 amid a mix of positive factors and challenges, and on adjusting policy properly and in a timely manner. There appears to be no change to the broad policy stance for 2013, with hints that reforms will be accelerated in certain areas.

We expect this stance to be endorsed at the next executive meeting of the State Council, and cascaded to lower levels of government at the upcoming annual Central Economic Work Meeting, usually held in the first half of December.

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