Industrial Output Rebounds

The Chinese economy began to rebound in Q1, with GDP up 6.4% y/y, flat on Q4 2018. Industrial output was up 6.5% y/y, up 0.8 pps from Q4. Then in March, GDP rose a powerful 8.5% y/y, up 1.4 pps from Q4, to its fastest growth rate since August 2014.

Investment, up 6.3% y/y, showed no clear trend. State investment was up 6.7% y/y, up 8.3 pps from Q3 2018, signaling government’s intention to keep supporting the economy.

Retail sales of consumption goods was up 8.3% y/y in Q1 in nominal terms, flat on Q4. Sales’ real growth rate was 6.9% y/y, up 0.9 pps.

Exports were up 6.7% y/y, down 1.8 pps, while imports rose 0.3% y/y, down 9.2 pps. The net export impact on China’s GDP was positive.

In March, CPI was up 2.3% y/y, and up 0.8 pps from February. The ex-factory price index of industrial goods and PPI rose 0.4% and 0.2% y/y respectively, and the main financial indicators also rose. At the end of March, M2 was up 8.6% y/y, up 0.5 pps from the end of 2018. In a strong recovery, M1 rose 4.6% y/y, up 3.1 pps from the end of 2018. Savings deposits from non-financial institutions were up 7% y/y, up 3.2 pps from 2018.

The second Belt and Road Initiative Forum hosted 37 countries in Beijing during the week of April 24th, with eight more countries participating since the last forum two years ago, including two new EU countries, Austria and Portugal. The initiative and dialogue forum will enhance global economic cooperation. The recent nexus of economic and geopolitical friction, such as the Huawei conflict with the Canadian government, requires negotiations. In our view, the Chinese government not only uses policy instruments to smooth over domestic economic cycles, but also tries to calm the international business cycle, adding strategic international investment. This can be seen from the relatively stable exchange rates, in external accounts, and in FDI and ODI.