Growth may be slower


The Chinese economy has been stably rising in Q2. GDP was up 7.9% y/y, and up 11.4% from Q2 2019, with an annualized growth rate of 5.5%, up 0.5 pps from Q1. Industrial output was up 8.9% y/y, and up 13.7% from Q2 2019, with an annualized growth rate of 6.6% y/y, slightly lower than in Q1 but higher than the pre-pandemic 2019 level; specifically, growth in June was 6.5%.

Investment was up 12.6% y/y, and increased 9.1% from Q2 2019, with an annualized growth rate of 4.4% y/y, up 1.8 pps from Q1, and down 1 pps from 2019. In Q2, retail sales of social consumption goods were up 9.5% from Q2 2019, with an annualized growth rate of 4.6% y/y, up 0.5 pps from Q1. In June, trade continued its strong growth. Exports rose 20.2% y/y, comparable to the average growth rate in March-May, while imports rose 24.4% y/y, up 5 pps from Q1.

Producer price growth slowed in June, but we expect it to pick up soon. The ex-factory price index of industrial goods increased 8.8% y/y, down 0.2 pps from May. CPI rose 1.1% y/y, down 0.2 pps from May, contributed by falling meat prices.

The main financial indicators saw diverging trends in June. The societal financing scale switched from large drops in previous months to positive growth of 7.7% y/y. M1 continues its declining growth trend. At the end of June, M2 rose 8.6% y/y, lower than most of the previous months. M1 rose 5.5% y/y, down 0.6 pps from May.

The pandemic shows no sign of vanishing from the world. This situation makes central banks around the world unlikely to exit from lowered interest rates and other stimulus measures. The vaccine situation in developed countries is much better than in the rest of the world. China’s strong recovery over the past 12 months is mainly derived from exports. This driving growth factor may be weakened by the economic recovery in developed countries, as they resume their production and reduce their demand for China’s exports later this year. China is therefore facing downturn pressures, amid an environment of globally increasing inflation.