J.P. Morgan Updated China Macro View Post Yesterday's PMI Prints

The US Bank expects a modest pick up in China growth momentum for Q3/Q4. Further monetary and fiscal policy support is expected, see below for more details.

"Following the softness in 2Q GDP (-0.6% q/q saar in our estimate) and July activity data, our latest forecasts look for moderate growth in 3Q (+4.1% q/q saar) and 4Q (+4.5% q/q saar), with full-year 2023 GDP growth forecast at 4.8%yoy. In particular, we expect a sequential pickup in domestic economic activity in August and September. In this regard, while the latest developments, including concerns of sluggish housing market and potential spillover to shadow banking and LGFV stress, remain worrying, the somewhat constructive signals from the August NBS PMI report (with the first uptick in the composite PMI in five months) suggest economic momentum may have stabilized and begun to improve modestly."

"Looking ahead, in the next few weeks, we expect further moderate easing measures to come through. On the monetary policy front, we expect an imminent 25bp RRR cut in the coming weeks (especially considering the issuance of more than 1 trillion yuan of special local government bonds by the end of September). Besides, following the disappointing July credit data, the central bank and other financial regulators have encouraged policy and commercial banks to expand credit support for the real economy, with PBOC Governor Pan emphasizing on support for private enterprises via bank loans, as well as stock and bond market financing. The PBOC may also step up the use of structural monetary policy instruments to support targeted sectors of the economy. On the fiscal side, in addition to the near-term acceleration in special LGB issuance, our baseline assumption expects quasi-fiscal support via policy banks (750 billion yuan this year). In the property market, we expect further housing policy easing measures to be announced in the coming weeks, e.g., lower down-payment requirement, relaxation in home purchase restrictions, with more cities to announce relaxation in the first home mortgage definition."