Strong rebound, even without a major stimulus

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GDP rose 3.2% y/y in Q2 -- a remarkable performance amid global pandemic. In June, industrial output was up 4.8% y/y, and up 0.4 pps from May, though has still not reached the pre-pandemic level, and was down 1.1 pps from Q4 2019. Investment, mostly driven by state investment, was up 5.6% y/y, up 1.7 pps from June and down 0.2 pps from Q4 2019.

Retail sales of consumption goods fell -1.8% y/y in June, up 1 pps from May. Exports rose 4.1% y/y in June, achieving positive growth for three consecutive months, averaging 4.5% y/y, higher than the growth rate of H2 2019. Imports were up 6.2% y/y, turning positive for the first time.

The ex-factory price index of industrial products fell -3% y/y in June, and PPI fell -4.4% y/y, up 0.7 and 0.6 pps from May, respectively. CPI slightly rebounded, rising 2.5% y/y, up 0.1 pps from May, and increased 0.4% y/y, after removing the seasonal factor.

The main financial indicators were still strong in June. M2 rose 11.1% y/y, the same rate as in May. The still-increasing adjusted M1 rose 7.3% y/y. Savings deposits from non-financial institutions were up 13.2% y/y.

The market has seen a steady increase in money market rates since early May, and the highest 10-year sovereign bond yield in five months. And although People’s Bank of China Governor Yi Gang signaled a fresh liquidity injection two weeks ago, it is taking an unusually long time to be delivered. We expect the strong growth rebound has made monetary loosening exit early. This is partly in order to avoid asset bubbles, in line with the recent housing price surge in major cities like Shenzhen, where housing prices have risen 20% over the past two months, and as seen in the stock market rally.