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July 30, 2020 | China Center Publications
China’s reported growth rebound of 3.2 percent in Q2 surprised to the upside, but growth momentum is likely to tail off in the 2H. Although there was considerable scrutiny of this Q2 number in the business media (for example), the reported growth spike seems within the realm of possibility given the size of the investment boom and industrial production surge in Q2 on the back of significant government stimulus.
ARTICLE
Impact of COVID-19 Crisis on the Chinese Economy – China’s surprisingly strong Q2 rebound was driven by a rapid resumption of industrial production, strong export demand for pandemic related products, and substantial stimulus measures and corresponding construction activities. For a confluence of reasons, these drivers are likely to diminish in the 2H. This will see growth momentum in the 2H weaken from the Q2 rate.
Investment Trends – On the back of strong stimulus measures, infrastructure and real estate led the investment recovery in Q2. But this has caused a re-heating of the real estate markets in some cities. In July, a few cities – including Nanjing, Shenzhen, and Hangzhou – announced new restrictions to cool down their respective housing markets. If such measures proliferate, this will bite on investment growth in the 2H. Escalating US-China tensions portend a continued weak outlook for manufacturing investment.
Consumption Trends – Consumption growth remained negative as of June, at -1.6 percent y-o-y. But growth in most goods categories continues to strengthen, except for cars and fuel. Lingering public health concerns about COVID-19 and a weak labor market point to consumption growth remaining under pre-coronavirus levels throughout 2020.
Trade Trends – Export and import growth both turned positive in June. China’s trade data in Q2 was stronger than expected – again driven by high demand for pandemic-related products, i.e. PPE, home office electronics, and medical equipment. However, the outlook for Chinese exports remains weak as a function of both the weak global economy and rising US-China trade tensions.
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