Recovering from the Lockdowns


GDP only grew 2.5% y/y in H1. As the pandemic shock has been gradually under control and the start of various economic stabilization policies, the recovery growth in June has lifted the Q2 growth to achieve positive growth at 0.4% y/y, contributing to the path “back to normal”. 

In H1, industrial output rose 3.4% y/y, down 3.1 pps from Q1. In H1, investment growth rate was 6.1% y/y, down 3.2 pps from Q1, but still 1.2 pps faster than 2021. The continuing real estate cooling does not see any time ending.

Pandemic lockdowns suppressed consumption. Retail sales of social consumption goods fell -0.7% y/y, down 4 pps from Q1. Survey data shows Chinese consumers are pessimistic about future income growth putting more constraint on future consumption recovery. In H1, exports rose 13.2% y/y. In June alone, exports rose 22% y/y, accelerating since April, and is an important force lifting economic recovery.

In H1, PPI rose 7.7% y/y. CPI increased 1.7% y/y. Low inflation benefits from the recovery of supply chains, domestically and internationally. However, future inflation pressure is still high. The main financial indicators were loosened somewhat countercyclically. At the end of June, M2 rose 11.4% y/y, up 0.3 pps from May, and up 1.7 pps from Q1, slowly picking up. M1 rose 5.8% y/y, up 1.2 pps from May, and up 1.1 pps from Q1.

China’s unemployment situation is worsening. According to the National Bureau of Statistics, the government official source, China’s youth unemployment rate for ages from 18 to 24 hit an all-time high of 19.3% in June. It was a sharp rise from 18.4% in May and marked a year-on-year increase of 25%. We believe the unemployment might not pose a society crisis. Parents in China usually provide living net. The unemployment leans more to friction cause. For example, many campus recruitments were suspended because of the pandemic.

Government will continue its effort to bring the economic activities to a higher level. However, it seems not necessary for China to stimulate the economy by additional measures. On July 20th, China’s Prime Minister Li Keqiang stated that China will not adopt large stimulus policies.