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This week in Asia: China in focus

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As markets reopen for the first week of 2016, investor focus in Asia will be on China for clues of how the economy will fare after a tumultuous year that rocked assets across the globe.

In 2015, the economy underwent a slowdown that had widespread impact on the rest of Asia and sparked concerns of an economic hard landing.

Rajiv Biswas, chief economist for Asia Pacific at IHS Global Insights said, "The Chinese economy is undergoing a period of structural change with growth momentum moderating from a pace of 10.6% in 2010 to an estimated 6.9% in 2015, edging lower to around 6.3% in 2016. Over the medium term outlook, Chinese GDP growth is expected to stabilize at a pace of around 6.5% per year.

Last week, data released from Beijing showed China's manufacturing sector contracted for a fifth straight month in December while the services sector saw a relatively stronger finish for 2015.

The official manufacturing Purchasing Managers' Index (PMI), a measure of factory activity, stood at 49.7 in December, which was in line with market expectations. On the other hand, the official non-manufacturing PMI was up 54.4, from November's reading of 53.6. A reading below 50 indicates a contraction in activity on a monthly basis.

The Caixin manufacturing PMI, released Monday morning, was at 48.2 against 48.6 in November. The services PMI will be out on Wednesday. The Caixin PMI is a closely-watched gauge of nationwide manufacturing and non-manufacturing activity, which focuses on smaller and medium-sized companies, filling a niche that isn't covered by the official data.

Starting Monday, trading hours for the yuan on the Shanghai-based foreign exchange market will be extended. The People's Bank of China made the announcement late December; it is considered a step forward in the convergence between China's onshore and offshore rates for the yuan.

The extension allows trading in the Chinese foreign exchange market during European trading hours.

On the trade front, Moody's Analytics expects China's foreign trade, due Friday*, to be at $50 billion surplus. Alaistair Chan, an economist at Moody's Analytics, said, "China's exports and imports continue to decline on a year-on-year basis, but there are signs of stability on the export side."

"Exports to the U.S. are expected to show steady recovery, while shipments to Japan and Europe will remain flat. Imports are expected to continue falling, thanks to the high supply of commodities worldwide and China's flagging demand," he added.

Moody's Analytics also expects China's Consumer Price Index (CPI) and Producer Price Index (PPI) to rise 1.5 percent on year and fall 5.7 percent from a year earlier, respectively. CPI and PPI are due later in the week.

Chan said that inflation pressures in China, outside of food, are minimal. "Monetary easing has had little appreciable impact on driving price growth, and deflation in producer goods means little upward price pressure in coming months."

Producer prices remain low due to overcapacity in heavy industry and an oversupply in commodities globally, according to Moody's. Chan added, "This is not expected to change soon, given the government's desire to restructure the economy and avoid another run up in debt."

Data Down Under

Australia will release its November trade as well as building approvals data on Thursday. The resource-oriented economy had a tough last year due to tumbling iron ore and coal prices. But some of that pain was offset by the lower Australian dollar which helped to boost its export sector revenues.

Shane Oliver, chief investment strategist at AMP Capital, said in a note previously he expects "November trade deficit to show a slight improvement [while] building approvals to fall."

He said he also expected November retail sales, which are due Friday, to show a 0.4 percent gain.

Elsewhere in Asia

In Japan, the parliament is due to convene starting Monday for a 150-day regular session as policymakers look for further reforms to prop up the third largest economy in the world.

Stateside, on Friday, the December nonfarm payroll data will be due. It will be the first jobs number, following the Fed's first rate hike after an extended period of near zero interest rates.

Moody's Analytics forecast the number to be at 220,000, in line with the average gain over the prior three months.

The firm said, "Forecasting December employment is tricky because it can be distorted significantly by seasonal hiring and weather. Also, initial claims are less useful in gauging the job market because of the added volatility surrounding Thanksgiving."

That said, Moody's believe seasonal hiring for the holidays "will be solid."

On the earnings front, South Korean giant Samsung will announce its fourth quarter and full year earnings guidance for 2015 later in the week. In the third quarter of 2015, the technology giant's third quarter earnings guidance blew past expectations, suggesting the company was getting back on track after a number of weak quarters. Third-quarter profits rose 79.8 percent on year to 7.3 trillion won ($6.29 billion).

*according to Trading Economics. Other commentators put the release date on January 13.

Reuters contributed to this report.

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