Date: Jul 20, 2024
In the first half of 2024, export growth accelerated due to global manufacturing recovery, and consumer goods sales remained steady thanks to supportive policies and other factors. However, the sustained decline in industrial product prices and the persistently low consumer prices suggest that demand remains relatively weak. The real estate market remains sluggish, overall societal expectations are still low, and businesses are under significant operational pressure. To turn the tide, it's crucial for policies to be significantly ramped up as soon as possible to improve expectations and boost confidence in the economy.
The economy showed signs of expansion, but faced mounting pressures.
In the first half of the year, the GDP increased by 5.0% year-on-year at constant prices, marking a slowdown from the same period last year and the entire previous year. The growth rate was 5.3% in the first quarter, but decelerated to 4.7% in the second quarter. The primary sector saw a year-on-year growth of 3.6% in the current quarter, while both the secondary and tertiary sectors experienced a noticeable decline. The swift slowdown in the growth rate of the tertiary sector's GDP could be attributed to adjustments in the statistical approach of the financial industry, reflecting the overall economic strain.
Recovery in external demand drives export acceleration.
In the first half of the year, exports grew by 6.9%, significantly outpacing the same period last year and the entire previous year. According to the latest statistics released by the WTO, the global manufacturing prosperity index continued to rise in the second quarter, and the trade-weighted manufacturing PMI rebounded. Influenced by the global trade recovery, exports in June registered a year-on-year increase of 8.6%, up 1 percentage point from the previous month, reaching the highest point since January 2024. The trade surplus in goods reached its highest since historical data began in August 1994. Despite a significant improvement in the volume of exports since the beginning of the year, the prices of exports have remained low.
Exports contributed to the overall stability of the industrial sector.
In the first half of the year, the added value of the industrial enterprises above designated size grew by 6.0% year-on-year, with the first and second quarters seeing respective increases of 6.1% and 5.9%. Among the three major sectors, manufacturing saw a robust growth of 6.5%, while the electricity, heat, gas, and water production and supply sector grew by 6.0%. The mining industry, however, experienced a more modest increase of 2.4%. Collectively, this indicates a slight overall deceleration in the growth rate. The high-tech manufacturing sector has been a standout, leading the way in high-end manufacturing. The added value of high-tech manufacturing industries above designated size surged by 8.7% year-on-year in the first half of the year, up by 1.2 percentage points compared to the first quarter. Driven by the rebound in exports, the cumulative growth rate of export delivery value for industrial enterprises above designated size has been accelerating month by month. This upward trajectory has been sustained for five consecutive quarters since the second quarter of 2023, underscoring the sector's resilience and growth momentum.
A variety of factors led to a continued decline in overall investment.
In the first half of the year, investment grew by 3.9% year-on-year, marking a slowdown from the first quarter but an acceleration compared to the same period last year and the entire previous year. From the perspective of three areas: Infrastructure investment rose by 5.4%, manufacturing investment by 9.5%, while real estate investment fell by 10.1%, with all these sectors seeing a decrease from the first quarter. Since the beginning of the year, regions have been proactive in initiating projects funded by additional government bonds and accelerating post-disaster reconstruction efforts. However, a slow fiscal tempo and the strain on fiscal spending have led to a continuous decline in narrowly defined overall infrastructure investment. The new real estate policies have started to take effect, with the year-on-year decrease in real estate investment narrowing for the first time this year.
The deceleration in the growth of consumer spending requires close attention.
In the first half of the year, China's total retail sales of consumer goods increased by 3.7% year-on-year, a slowdown compared to the first quarter, the same period last year, and the entire previous year. Among these, retail sales of goods rose by 3.2%, catering services saw a growth of 7.9%, and the retail sales of services were up by 7.5% year-on-year. Overall, the performance has weakened compared to the first quarter.
The persistent decline in prices needs to be reversed promptly.
In the first half of the year, the Producer Price Index (PPI) fell by 2.1% year-on-year, marking a 0.6 percentage point decrease in the rate of decline compared to the first quarter. The overall upward trend in international prices for crude oil and non-ferrous metals has led to increased prices in related domestic industries. Prices in sectors such as coal, building materials, and equipment manufacturing have seen a reduction in the rate of decline. Policies including large-scale equipment renewal and trade-ins of old consumer goods for new ones are gradually being implemented and are beginning to take effect, contributing an improved outlook for the steel market. The slowing decrease in PPI is contributing to a recovery in the Consumer Price Index (CPI), but the ongoing negative growth in PPI continues to exert downward pressure on the CPI. There has been a slight decline in the growth rate for service prices: in the first half of the year, service prices were up by 0.9% year-on-year, with the growth rate falling by 0.2 percentage points from the first quarter.
