News Analysis: Economists forecast slower August investment, better production

China's fixed-asset investment (FAI) likely slowed further in August, while industrial production could have improved marginally, economists said ahead of the official release of the data next week.

Lian Ping, chief economist at the Bank of Communications, predicted the August FAI growth at 8 percent, down from 8.1 percent for the first seven months and 9 percent for the first six months.

Manufacturing investment and private investment continued to decelerate in August, contributing to the slowdown in overall FAI growth, according to Lian.

Gao Hua Securities made the same prediction, but UBS seemed more pessimistic, forecasting 7.9-percent FAI growth on a year-to-date basis.

"Manufacturing investment likely stayed weak due to persistent excess capacity issues and the government's recent official reiteration of its supply-side reform goals," said UBS China economist Wang Tao.

China's FAI is on a long-term decline and will possibly fall to 6 percent for the whole of 2016, said Jiang Chao, strategy analyst at Haitong Securities.

Private investment, which accounts for more than 60 percent of the total FAI, may get a boost from the government in the remaining months of the year.

Last month, the National Development and Reform Commission encouraged the use of public-private partnerships (PPP) in infrastructure construction, including energy, transportation, water conservation, environmental protection, agriculture, forestry and utilities.

The notice followed the government's repeated efforts to promote PPP to solicit private investment, which has slowed consecutively for months.

"PPP can alleviate funding shortages for local governments and boost private investment," said Ren Zeping, chief economist at Founder Securities.

Anemic investment appeared to have little impact on industrial production as factory activities regained steam on rapidly rebounding profitability, partly thanks to recovering product prices on the back of reduced overcapacity.

The official purchasing mangers index (PMI) picked up from 49.9 in July to 50.4 in August, entering expansion territory, while the private Caixin PMI slid from 50.6 to 50, just above the contraction line.

"Both sets of new orders and production sub-indices stayed above 50, suggesting that Chinese manufacturing activity remained in stabilization mode," said Wang.

She predicted 6.2-percent growth in August industrial production, slightly better than the 6 percent in July, when industrial profits expanded 11 percent, sharply up from 5.1 percent in June.

The official PMI covers over 3,000 enterprises and is weighted more toward large companies, while Caixin PMI surveys about 420 firms, with an emphasis on smaller businesses.

The PMI divergence suggests that big enterprises may have performed better than their small and medium counterparts due to better access to credit and more benefits from policy support, according to the UBS economist.

The economists also said sales of daily consumer goods last month were flat or better compared with July.

"We expect the upcoming August data release to show China's economic activity has found a slightly firmer footing," said Wang. Endi