China will release January inflation, trade, and monetary data during 9-15 February (Figure 1). Activity data (IP, FAI and retail sales) will be released on 9 March after obtaining average January and February figures to remove distortions related to the timing of Chinese New Year (CNY).

Indeed, the CNY month usually see acceleration in prices and retail sales and a deceleration in trade and industrial activity. The earlier CNY this year (23 January versus 3 February last year) is expected to boost y/y CPI inflation but drag down y/y trade growth in January and do the opposite in February.
 
Overall, we think: 1) our main scenario - a soft landing, with investment deceleration and further moderation in industrial activity before bottoming out sometime in H1 2012 - remains on track; and 2) on balance, the December data and January PMI suggest the risk to our baseline 8.1% GDP forecast is tilted slightly towards the upside. Despite the CNY effects complicating the interpretation of the data and the significant uncertainty associated with the domestic property market correction and euro area debt crisis, the latest global PMIs provide some comfort about the extent of the slowdown in domestic and external demand.  
 
Trade will likely post its first y/y decline since 2009 in January (as also seen in the Korean trade data, Figure 2) - we forecast a 5% decrease in both exports and imports. The contraction in trade reflects Chinese New Year effects, as well as external weakness (below-50 readings in the PMI export orders index) and slowing domestic investment growth (Figure 3). The seasonal effect was also seen in 2001, when the holidays fell on 24 January versus 5 February in 2000. In 2001, exports rose 0.1% in January and 28.4% in February, while imports increased 1.9% and 35.8%, respectively.    
 
On a m/m basis, we expect the CPI to rise in January, as the CNY pushes up food prices. We forecast January y/y CPI inflation will be flat with December, at 4.1%, before resuming a moderating trend and falling below 3% by midyear (Figure 4). We forecast PPI inflation will slow to 0.6% y/y from 1.7% (Figure 5). Global commodity prices continued to decline y/y in January (-6% versus -5% in December), but it is worth noting their m/m increase last month (+2.4%) was the strongest in nine months. Meanwhile, we expect liquidity conditions to improve post-CNY and forecast ~CNY1trn of new loans in January (in line with ~CNY8trn of new loans for 2012) despite fewer working days, giving rise to 13.8% M2 growth.


source: BarCap