Robust growth without monetary loosening


Growth is stable. Industrial output was up 9.8% y/y in April, and up 14.1% y/y from April 2019, with annualized growth of 6.8% y/y, the same as in Q1, and higher than the pre-pandemic levels in 2018 and 2019. Investment is still weak, and rose 8% y/y from April 2019, with an annualized growth rate of 3.9% y/y, up 1.3 pps from Q1. We expect economic growth to be strong, though fiscal and monetary policy are not loosening. Our forecast is based on strong trade growth from global economic recovery, commodity price appreciation and demand recovery.

Consumption recovered slowly. In April, price-adjusted consumption grew 5.4% y/y from April 2019, with an annualized growth rate of 2.7% y/y. Trade in April continues to be strong. Exports rose 22.2% y/y, up 11 pps from Q4 2020. Imports rose 32.2% y/y, up more than 20 pps from Q4.

Producer prices continue to grow faster. In April, the ex-factory price index of industrial output rose 6.8% y/y, and PPI increased 9% y/y, approaching the peak point in Q1 2017. CPI rose 0.9% y/y, up 0.5 pps from March. Most financial and monetary indicators grew more slowly. At the end of April, M2 rose 8.1% y/y, down 2 pps from the end of 2020. M1 rose 6.2% y/y, down 2.4 pps.

China’s once-in-a-decade population census, with preliminary results announced on May 12th, showed the slowest population growth rate since the 1950s, notwithstanding the relaxation of the one-child policy to a two-child policy in 2016. The census also showed that more Chinese people were moving away from the poorer northeastern part of the country, and to the wealthier eastern and southern regions. For example, Shenzhen and Guangzhou, already among the largest cities previously, gained the most, of 7.13 million and 5.98 million people. The migration to richer and more productive cities, made possible by the relaxation of Hukou, provides a key growth source, simply because labor can be utilized more efficiently.