Economy Continued to Expand Amidst Growing Pressure, Further Policy Needed to Boost Expectations
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.
Policies and External Demand Boost Economic Improvement
Date: Apr 20, 2024
In the first quarter of 2024, the economy improved overall due to the combined effect of recovering external demand, the sustained impact of earlier policies, the timing of the Spring Festival, and changes in base figures. Major macroeconomic indicators remained generally stable, but data for March showed signs of marginal weakening compared to January and February. This weakening is partly due to the base effect but also requires close attention, indicating the need for sustained policy efforts.
Policies, among other factors, have contributed to the overall economic…
Economic Performances Fell Back, Policy Support Still Needed
Date: November 20, 2023
In October, China's economy may not appear to gain a strong recovery. However, a rational look at the situation shows there is some potential amid the current difficulties. Weakness in overseas manufacturing led to a decline in exports, impacting relevant industrial chains. Infrastructure and real estate investments remained weak, while manufacturing investment stayed stable owing to policy support and shifting demands. Supported by holiday promotions and a resurgence in service consumption, overall consumption remained resilient, although certain consumer goods…
Treat Recovery Data with Caution
Date: Feb 27, 2023
Because of Chinese New Year, the statistics bureau didn’t announce price, financial and PMI data until February. China switched from zero-COVID lockdown to almost no restrictions in December 2022, and by January 2023, normal life had nearly returned. The economy is generally improving, but caution about its sustainability is required.
Manufacturing PMI, the non-manufacturing business index and the composite PMI production index were 50.1%, 54.4%, and 52.9% in January 2023, up 3.1, 12.8, and 10.3 pps from December. All rose to the improvement zone, showing that the…
Back on Track in 2023
Date: Jan 29, 2023
GDP grew 3% in 2022. Specifically, China’s economy rose by 2.9% y/y in Q4 2022, down from the 3.9% growth reported in Q3. Many negative factors affected the economy in 2022, including global macroeconomic tightening, the Ukraine crisis, real estate restructuring, the pandemic management policies and so forth. As some of the above factors abated, particularly abolishment of the zero-COVID policy, we expect that, after a turbulent 2022, the economy will be back on track in 2023.
Industrial output grew 3.6% in 2022, down 6 pps from 2021. Investment rose 5.1%, up 0.2 pps,…
Recovery Is Constrained By Covid, Again
Date: Nov 24, 2022
Growth is weakly recovering, with pressure ahead largely from the Covid prevention and its related lockdowns. Although there was some rumor regarding abandoning the zero-Covid policy, there were also signs that China will commit to this policy in the short term, citing reasons from state media that China’s per capita medical resource is low. We forecast that although there might be some relaxing adjustment, for example that foreign entry has reduced to five-day quarantine from seven days, the zero-Covid policy will not be abandoned soon.
In January-October, industrial…
Recovery Slows Amid Weakening Global Economy
Growth strengthened, but only slightly. In August, industrial output rose 4.2% y/y, up 0.4 pps, lifting overall January-August growth to 3.6%, up 0.1 pps. Investment rose 5.8% y/y in January-August, up 0.1 pps. The August growth rate was 6.4% y/y, up 2.8 pps. Real estate investment growth rate fell further, to -13.8% y/y, down 1.7 pps from August 2021.
In August 2022, consumption rose 5.5% y/y, up 2.7 pps. This is partly due to the low base number of last year, when consumption rose 2.5%, and was down 6 pps from August 2021.
Exports rose 11.8% y/y, down 12.1 pps from July 2022. This seems…
Real Estate Cooling Drags Economic Recovery
Industrial output grew 3.5% y/y in January-July, up 0.1 pps from H1. In January-July, investment rose 5.7% y/y, down 0.4 pps from H1. In particular, the investment growth rate in July was down 2.4 pps from June. High infrastructure investment has been flattened by reduced real estate investment.
Retail sales of social consumption goods fell -0.2% y/y in January-July, up 0.5 pps from January-June. Exports were still strong. In July, exports rose 23.9% y/y, up 1.9 pps from June. Due to the stop of global monetary policy easing, the continuing Ukraine crisis, and the ongoing pandemic, other…
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…
Signs of monetary and fiscal expansion at last
Because of the long Chinese New Year holiday, the statistics bureau only announced price, financial and PMI data in February. Producer prices grew more slowly. PPI rose 9.1% y/y, down another 1.2 pps from December. The ex-factory price index of industrial goods rose 8.85% y/y, while CPI growth also slowed. CPI rose 0.9% y/y in January, down 0.6 pps from December. In particular, food prices fell -3.8% y/y, down 2.6 pps from December, dragging CPI down 0.72 pps. That is the leading factor lowering CPI. The falling price levels offer ample room for further money expansion.
At the end of…
Lockdown Halts Powerful Economic Recovery
The COVID-19 lockdowns in Shanghai and some other cities since late March have halted the strong economic recovery. In Q1, GDP was up 4.8% y/y, up 0.8 pps from Q4 2021, but 0.2 pps lower than in Q1 2020. Industrial output rose 6.5% in Q1, up
2.6 ppts from Q4, but down 1 pps from January-February. Investment rose 9.3% y/y in Q1, up 4.4 pps from 2021, but 2.9 pps lower than in January-February.
In March, overall PMI, manufacturing PMI, and non-manufacturing business activity PMI were 48.8%, 49.5% and 48.4% respectively, all falling steeply from the previous month, demonstrating that the…
Signs of monetary and fiscal expansion at last
Executive summary
Because of the long Chinese New Year holiday, the statistics bureau only announced price, financial and PMI data in February. Producer prices grew more slowly. PPI rose 9.1% y/y, down another 1.2 pps from December. The ex-factory price index of industrial goods rose 8.85% y/y, while CPI growth also slowed. CPI rose 0.9% y/y in January, down 0.6 pps from December. In particular, food prices fell -3.8% y/y, down 2.6 pps from December, dragging CPI down 0.72 pps. That is the leading factor lowering CPI. The falling price levels offer ample room for further money expansion.
At…
Yuan may appreciate further in 2022, but not hit 6 to the dollar
Growth continues to be weak. In November, industrial output grew 3.8% y/y, down 1.1 pps from Q3, much lower than the growth rates of recent years. Investment is also low, and was up 7.9% y/y, and down 1.2 pps from January-June. Its adjusted growth rate is instead negative. The real estate market is still cold: sales were down -14.2% y/y in November.
Consumption rose 3.9% y/y in November, down 1 pps from October, and its adjusted growth rate was 0.5% y/y, hitting its lowest level this year. But trade is still strong. Imports were up 26% y/y, and up 9.8 pps from Q3. Exports were up16.6% y/y.
…
Growth weakens, though more structural reforms are underway
Growth has weakened, especially in services. In August, industrial output grew 5.3% y/y, and was up 11.2% from August 2019, with an annualized growth rate of 5.4%, down 0.2 ppts from July, and down 1.2 ppts from Q2. The service production index has slowed since Q2, and grew only 4.8% y/y in August, after being further hit by the COVID outbreaks, down 2.9 ppts from Q4 2020, and down 2.1 ppts from 2019.
Investment was up 8.9% y/y January-August, and increased 8% from August 2019, with an annualized growth rate of 4%, down 0.5 ppt from H1. Real estate is cooling dramatically, to the 2008…
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…
Stronger yuan against a weak dollar
Growth was stable in May. Industrial output rose 8.8% y/y, and increased 13.6% from May 2019, with an annualized growth rate of 6.6%. Investment rose 15.4% y/y, and increased 8.5% from May 2019, with an annualized growth rate of 4.2% y/y -- still in a low growth zone.
Consumption has recovered further. In May, retail sales of social consumption goods rose 9.3% y/y from May 2019, with an annualized growth rate of 4.5%, up 0.2 pps from April. Trade has been strong since the beginning of this year, especially for imports, which are growing robustly. In May, imports rose 39.5% y/y. Exports rose…
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,…
Import rally
GDP was up 18.3% y/y in Q1, and up 10.3% from Q1 2019, with an annualized growth rate of around 5%. In this report, we mostly use Q1 2019 as the benchmark period, because the major shock from the pandemic in February 2020 makes Q1 2020 data hardly comparable. The adjusted growth rate was lower than in Q4 2020, and higher than in Q3 2020, and can be viewed as stable.
In Q1 2021, industrial output was up 14% y/y from Q1 2019, with annualized growth of 6.8%, slightly lower than in Q4 2020. In particular, industrial growth in March reached 12.8% y/y, with an annualized growth rate of 6.2% y/y,…
Consumption set to rebound
Economic recovery is still going strong. In January-February, industrial output was up 35.1% y/y, and up 16.9% compared to January-February 2019. Annualized growth was 8.1% y/y, higher than all quarterly growth since 2015, and up 1 pps from Q4 2020. Since the Chinese economy was shut down to a large extent last February due to COVID-19, we also look at growth rates for most indicators by comparing their performance with the same period in 2019.
In January-February, investment fell -35% y/y, and was up only 3.5% y/y from the same period in 2019. The investment slowdown is mostly due to the…
Economic resilience will stoke export growth
Producer prices increased fast between June 2020 and January 2021, and finally turned positive. The ex-factory price index of industrial goods rose 1% m/m, and 0.3% y/y. PPI rose 1.4% m/m, and 0.9% y/y. We expect the ex-factory price index to soon rise higher than 5% y/y, and PPI will rise higher than 8% y/y.
CPI fell -0.3% y/y. However, its seasonally adjusted growth rate was 0.3% m/m. The rise of the CPI level is mainly driven by the strong rebound of meat prices. The rebound is temporary, and linked to the Spring Festival effect. We expect the meat price will continuously drop for the…
Exports are surging
Industrial output rose 7% y/y in November, reaching its fastest growth rate since April. Investment rose 2.6% y/y, and was up 0.8 pps from October.
Consumption was the worst-hit macro variable of the pandemic. But retail sales of consumer goods recovered further, rising 5% y/y, up 0.7 pps from October. Its real growth rate was 6.2% y/y, and was even higher than in November 2019.
CPI fell -0.5% y/y in November, turning negative for the first time, hit by a fall in pork prices. The ex-factory price index of industrial output fell -1.5% y/y, and PPI fell -1.6% y/y, up 0.6 and 0.8 pps…