Insights for What’s Ahead:

• Status of China’s Economic Recovery – Overall, China’s growth continues losing momentum. May data was largely disappointing, with manufacturing activity, exports, investments, and consumption all showing either mixed or deteriorating signs compared with April. 
• Investment Trends – Fixed asset investment is slowing across the board. Growth continues to be driven by SOE investment, while private sector investment shrank in Jan-May compared to last year. Property investment slipped further in May, and other key property-related indicators were also firmly pointing downwards, with new construction starts and new housing sales both declining substantially.
• Consumption Trends – The consumption recovery remains uneven. Total retail sales and consumer services spending continued to grow at double digit rates y-o-y in May, helped by a low base and May holiday spending. Meanwhile, residential housing sales continue to decline. There are still no signs that labor market weakness is easing meaningfully. Hiring intentions are mixed but generally slowing, while youth unemployment climbed to a record high of 20.8 percent in May.
• Trade Trends – Exports tumbled in May. The slowdown in external demand was noticeable even in those markets that have been absorbing a higher share of Chinese exports over the past months (e.g., Africa, Latin America, Russia). Demand from major trading partners like the US and the EU continued to weaken, and exports to ASEAN countries fell by -15.9 percent, a reversal from the high double-digit growth seen earlier in the year. Exports are likely to slide further over the coming months driven by deteriorating external demand. 
• Implications for Business – China’s growth momentum is clearly waning, driven by low confidence levels. With domestic demand softening and downgrading, and external demand slowing, businesses have few incentives to invest as before. For this same reason, supply-side stimulus measures, such as boosting liquidity, will not be as effecas intended. Risks are tilted to the downside and H2 growth might disappoint given previous expectations, but we believe that it is at this crucial time that MNCs have to make the right investments to defend their market share and prevent being outcompeted once the upswing of the economic and business cycle arrives.