After a tough Q2, China's economy heads for stronger recovery?
After seeing substantial decline in major economic indicators in April, the Chinese economy had a tough battle against COVID-19 resurgences and external headwinds to register a positive growth in Q2.
After seeing substantial decline in major economic indicators in April, the Chinese economy has had a tough battle against COVID-19 resurgences in multiple regions and external headwinds to register a positive 0.4-percent growth in the second quarter.
Chinese Premier Li Keqiang described the country's economic circumstances in the second quarter as "extremely rare," with unexpected factors triggering severe shocks and downward pressure increasing.
Although the 2.5-pct growth for the first half is eclipsed by the 12.7 percent of the same period of last year, clear-cut recovery signs appeared in June amid policymakers' efforts to shore up the economy.
A raft of first-half data, released by authorities this week, revealed the resilience of the world's second-largest economy with industrial output, fixed-asset investment and retail sales perking up and exports rising at a double-digit pace.
The following is a review of the data highlights and some comments from analysts and the National Bureau of Statistics (NBS) on what to expect moving forward.
FOREIGN TRADE
FACTS: China's foreign trade of goods jumped 9.4 percent year on year to 19.8 trillion yuan (about 2.94 trillion U.S. dollars) in the first half.
Exports rose 13.2 percent year on year to 11.14 trillion yuan, while imports increased 4.8 percent from a year ago to 8.66 trillion yuan.
Strikingly, China's foreign trade growth accelerated to 14.3 percent in June, compared with 9.5 percent in May and 0.1 percent in April.
“China's exports may continue to show better-than-expected resilience in the second half, with an expected increase of 7.5 percent year on year.”
—Zhou Junzhi, chief macro analyst at Minsheng Securities
NEW LOANS
FACTS: New yuan loans stood at 2.81 trillion yuan in June, higher than 1.89 trillion yuan in May.
The M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 11.4 percent year on year to 258.15 trillion yuan at the end of June, a new high since 2016.
Corporate bonds raised 1.95 trillion yuan during the first half, up 391.3 billion yuan from a year earlier. Equity financing reached 502.8 billion yuan, up from 495.5 billion yuan a year ago.
“Financial institutions will continue to be encouraged to increase support for the real economy, reduce business financing costs and stabilize industrial and supply chains.”
— Wen Bin, chief economist at China Minsheng Bank
POWER USE
FACTS: China's electricity consumption, a key barometer of economic activity, rose 2.9 percent year on year to 4.1 trillion kilowatt-hours in the first half.
“Total power use is expected to rise 7 percent in the second half, 4 percentage points higher than the growth in the first half.”
— The China Electricity Council
LOGISTICS
FACTS: The index tracking China's logistics market performance stood at 52.1 percent in June, climbing above the boom-bust of 50 percent for the first time after staying in the contraction zone for three months.
“It was a turning point marking the shift from fall to rise, and it has sent a signal that the economy is restoring growth on its supply side.”
—Cai Jin, deputy director of the China Federation of Logistics & Purchasing
INFLATION
FACTS: China's consumer price index, a main gauge of inflation, rose 2.5 percent year on year in June. Producer price index, which measures costs for goods at the factory gate, went up 6.1 percent year on year in June, narrowing by 0.3 percentage points from a month earlier.
China's mild inflation made a sharp contrast with the towering U.S. CPI readings. Earlier this month, IMF executive directors said in a statement that a broad-based inflation surge was "posting systemic risks to both the United States and the global economy."
China's relatively low and stable inflation levels provide leeway for the government to further stimulate the economy. However, the country did need to curb inflation, particularly imported inflation, to keep the economy running within an appropriate range, according to a symposium presided by Premier Li Keqiang on the economic situation attended by economists and entrepreneurs.
INDUSTRIAL PRODUCTION,
RETAIL SALES, FIXED-ASSET INVESTMENT
FACTS: China's value-added industrial output, an important economic indicator, went up 3.4 percent year on year in the first half. In June alone, industrial output growth quickened to 3.9 percent year on year, expanding by 3.2 percentage points from that in May.
China's retail sales of consumer goods, a major indicator of consumption strength, went up 3.1 percent year on year in June. The growth reversed from declines seen in April and May.
Fixed-asset investment jumped 6.1 percent from a year earlier to 27.14 trillion yuan in the first half. In June, fixed-asset investment picked up 0.95 percent from a month earlier.
"Monthly activity data reflected some recovery in June, thanks to the lifting of lockdowns."
"Year-on-year activity growth could be relatively stable in July, which may be little changed from June, as a moderation in recovery momentum is offset by a lower base."
— Lu Ting, chief China economist with securities firm Nomura
LOOKING AHEAD
Most of the research results have pointed to a potential growth rate of five to six percent for the Chinese economy. The projection remains at a medium-high level across the world and is anything but easy given the size of the Chinese economy.
The second-quarter expansion didn't come by easily. It is necessary to be aware that the foundation for economic recovery is yet to be consolidated.
—Fu Linghui, the National Bureau of Statistics
Challenges the country has to cope with range from the rising risk of stagflation in the world economy, lingering impact of the epidemic, shrinking demand intertwined with disrupted supply to market entities in operation difficulties.
As the economic recovery is at a critical period, strong measures are likely to be adopted while effect of the existing policies are to be more pronounced.
Fu said it was hopeful for the economy to expand within the appropriate range for the second half, but hard work is still needed. Complex international environment, together with challenges from the COVID-19, de-globalization as well as the country's economic restructuring and transformation, is making it increasingly difficult to reach the country's potential growth. ☕️