Recent data suggest that domestic demand is starting to catch up with China’s primarily supply-side driven recovery to date. Of note, consumer demand for small services appears to be on the rise, as evidenced by both price and employment increases in the small services segment. Corporate financing demand also appears to be increasing. These two factors suggest marginally improving consumer confidence and business sentiment in China.  

• Impact of COVID-19 Crisis on the Chinese Economy – China’s continued success at preventing a second-wave COVID-19 outbreak sees Chinese consumers becoming gradually more confident. Spending on consumer services is beginning to pick up. Retail growth in August turned positive for the first time this year. On the supply side of the economy, Industrial Production growth has returned to pre-COVID levels.  
• Investment Trends – Manufacturing investment is rising on the back of improving factory-gate pricing and corporate profitability. Credit data suggest growing demand for corporate financing. Intensifying real estate restrictions should see housing development investment slow. State-led infrastructure investment will continue to be used as a countercyclical policy tool for the foreseeable future. 
• Consumption Trends – Retail sales growth accelerated in August. CPI and PMI data indicate a pickup in demand for consumer services. The labor market is showing some signs of improvement, but job and household income conditions are still weak. It will be a long while before Chinese consumption growth, in aggregate, returns to pre-COVID levels.   
• Trade Trends – China’s export growth continues to strengthen on the back of strong recovery in global demand. However, second wave COVID outbreaks in Europe and worsening pandemic conditions in the US are likely drag on the momentum of global economic recovery in the coming months.    

Implications for Business

Recent data suggest that domestic demand is starting to catch up with China’s primarily supply-side driven recovery to date. Of note, consumer demand for small services appears to be on the rise, as evidenced by both price and employment increases in the small services segment. Corporate financing demand also appears to be increasing. These two factors suggest marginally improving consumer confidence and business sentiment in China. As we’ve discussed, China’s exports have surprised to the upside since Q2. For the robust export growth to continue, much will depend on trajectory of the global economy, and whether the current U-shaped global recovery holds and continues to support China’s strong export performance.    

Note: Member businesses in China are driven, in general, by one or more of three key economic factors: Investment, Consumption and Trade. Our monthly “China Economy Watch” analysis assesses each factor in turn to inform business planning and forecasting.