China: Can the unbalanced economic recovery be sustained?
2024-06-24
■ In May, high-tech production and investment increased significantly, but real estate transactions were sluggish, and the recovery was uneven.
■ With the upcoming Third Plenary Session of the 20th Central Committee in July, a pivotal event that will significantly impact the Chinese economy, the question arises: will it accelerate the polarization between the 'new economy' and the 'old economy'?
Based on the May economic data indicators released yesterday, we have confirmed the current trend of the Chinese economy. The leading indicators in May showed that the growth rate of retail sales (up 3.7% year-on-year), service industry production index (up 4.8% year-on-year), and exports (up 7.6% year-on-year) further accelerated, while the growth trend of industrial production (up 5.6% year on year) and fixed assets investment (excluding rural areas, up 4.0% year on year) weakened. Although household consumption shows signs of recovery, some reasons for retail sales, service industry production index, and export growth are due to the base period effect and the increase in the May labor holidays. The indicator results alternate and show varying strengths. Overall, the economic assessment suggests that growth is still sustained moderately.
Expressly, in terms of various indicators, the significant increase in production and investment in the high-tech industry confirms the efforts of the Chinese government to enhance the "new productivity" and transform the economic structure. At the same time, the traditional heavy industry, which still holds excess production capacity, and the real estate development industry, which has a large amount of inventory and debt, are still in a slump. The significant decrease in building material prices has led to an intensification of the decline in the Producer Price Index (down 1.4% year-on-year), real estate development investment (down 10.1% year-on-year from the beginning of the year), and real estate sales (down 20.3% year-on-year based on building area), making it difficult to control. At the same time, although the People's Bank of China has expanded its liquidity supply, the money base (M0, a year-on-year increase of 11.7%) has strengthened for the first time in three months, while the growth rate of money supply (M2, a year-on-year increase of 7.0%) and RMB loan balance (a year-on-year increase of 9.3%) has slowed down, indicating that the demand for funds among the people has not significantly increased.
The Third Plenary Session of the 20th Central Committee will be held in July to decide on the direction of medium-term economic policy operation. The Chinese government expects to continue promoting the policy of building a modern industrial system, focusing on digitalization, advanced technology, and the environment to encourage industrial development further. At the same time, from the perspective of stabilizing the economy and curbing financial risks, it is expected to emphasize the response to the reduction of real estate and local government debt, as well as the potential stagnation of related industry activities and unemployment issues that may arise during the process. Adjusting policies may accelerate the sluggish activity of the "old economy" and the rapid growth of the "new economy," such as high-tech industries. It is expected that in the future, there will continue to be an unbalanced economic recovery dominated by some high-tech industries.
■ With the upcoming Third Plenary Session of the 20th Central Committee in July, a pivotal event that will significantly impact the Chinese economy, the question arises: will it accelerate the polarization between the 'new economy' and the 'old economy'?
Based on the May economic data indicators released yesterday, we have confirmed the current trend of the Chinese economy. The leading indicators in May showed that the growth rate of retail sales (up 3.7% year-on-year), service industry production index (up 4.8% year-on-year), and exports (up 7.6% year-on-year) further accelerated, while the growth trend of industrial production (up 5.6% year on year) and fixed assets investment (excluding rural areas, up 4.0% year on year) weakened. Although household consumption shows signs of recovery, some reasons for retail sales, service industry production index, and export growth are due to the base period effect and the increase in the May labor holidays. The indicator results alternate and show varying strengths. Overall, the economic assessment suggests that growth is still sustained moderately.
Expressly, in terms of various indicators, the significant increase in production and investment in the high-tech industry confirms the efforts of the Chinese government to enhance the "new productivity" and transform the economic structure. At the same time, the traditional heavy industry, which still holds excess production capacity, and the real estate development industry, which has a large amount of inventory and debt, are still in a slump. The significant decrease in building material prices has led to an intensification of the decline in the Producer Price Index (down 1.4% year-on-year), real estate development investment (down 10.1% year-on-year from the beginning of the year), and real estate sales (down 20.3% year-on-year based on building area), making it difficult to control. At the same time, although the People's Bank of China has expanded its liquidity supply, the money base (M0, a year-on-year increase of 11.7%) has strengthened for the first time in three months, while the growth rate of money supply (M2, a year-on-year increase of 7.0%) and RMB loan balance (a year-on-year increase of 9.3%) has slowed down, indicating that the demand for funds among the people has not significantly increased.
The Third Plenary Session of the 20th Central Committee will be held in July to decide on the direction of medium-term economic policy operation. The Chinese government expects to continue promoting the policy of building a modern industrial system, focusing on digitalization, advanced technology, and the environment to encourage industrial development further. At the same time, from the perspective of stabilizing the economy and curbing financial risks, it is expected to emphasize the response to the reduction of real estate and local government debt, as well as the potential stagnation of related industry activities and unemployment issues that may arise during the process. Adjusting policies may accelerate the sluggish activity of the "old economy" and the rapid growth of the "new economy," such as high-tech industries. It is expected that in the future, there will continue to be an unbalanced economic recovery dominated by some high-tech industries.