Insights for What’s Ahead:

• Status of China’s Economic Recovery – Overall, the recovery remains patchy and uneven. Headline data for April benefitted from last year’s low base, but still came in largely below market expectations, with growth in industrial production, FAI, credit, and retail sales all below expectations. May PMI data show mixed signals for factory and services activity, some indicating further slowing, other moderate improvements.
• Investment Trends – Fixed asset investment slowed further in April, and growth was mainly driven by SOE investment, with only marginal growth from private sector investment. For the property sector, the completion of unfinished projects continued, while new construction starts declined. New property sales fell further in April, and new household loans also slowed, indicating that the uptick in buyer sentiment may have been short lived.
• Consumption Trends – The consumption recovery appears to be losing momentum. While y-o-y growth in retail sales surged in April, this was largely driven by the very low base from last year, and month-on-month growth was actually negative. There are still no signs that labor market weakness is easing meaningfully. Hiring intentions cooled across the board in April, and in the manufacturing sector may be slipping further according to May data. The overall urban unemployment rate continued to drop in April, but youth unemployment is at a record high. 
• Trade Trends – Exports continued growing in April, but slowed down considerably compared with March. Imports unexpectedly fell further in April, amidst weakening domestic demand. While demand from major trading partners remains weak, a growing share of exports is now going to emerging markets. We expect overall export growth to be modest this year, given that fundamental headwinds remain unchanged. 
• Implications for Business – China’s growth momentum is slowing. Not only are there increasing indications that the initial burst of pent-up consumer spending is largely over, but confidence remains weak. We think domestic demand could soften in the coming months, while spending patterns are likely to reflect a shift towards less expensive products and services (i.e., “downgrading”). Also, the current flightiness of monthly data will make it challenging to interpret the data for broader, more enduring signs of the strength of economic recovery in Q2.