China economy: Recovery is clear, but sustainability is uncertain
2022-07-20
■ Chinese Economic Indicators improved significantly in June accompanied with the government removes the restrictions on leaving home. But the depression in real estate market is clear.
■As the coronavirus continues to spread, sustainability of economic recovery is uncertain.
The major economic indicators of China till June have almost been released already. Real GDP growth rate in April-June is the lowest since January-March 2020 due to the severe close down in Shanghai and some other cities. In order to come true with the target that Chinese government has set: achieve the target of “nearly 5.5%” growth rate in 2022, it needs to accelerate the pace of growth in the second half of the year.
However, the main indicators for June could clearly confirm the recovery of the economy. Mining production (+3.9% YOY, +0.84% MOM), Retail sales (+3.1% YOY, +0.53% MOM), Fixed asset investment (except for rural areas, up 6.1% YOY, up 0.95% MOM), Fixed asset investment (except for rural areas, +6.1% YOY, +0.95% MOM). There’s a strong growth in retail sales and fixed asset investment. Mining production, which surged in May, also maintained higher growth. Until May, the production-centered economic activity is recovering gradually. Due to the remove of out-of-home restrictions, residential consumption and infrastructure investment are fully recovering. Otherwise, exports in May (+17.9% YOY) continue to grow significantly. It seems that the normalization of logistics in Shanghai port is progressing steadily. In contrast, real estate market remains sluggish. The downward trend in real estate investment (-5.4% YOY) is strengthening. Real estate sales (building area, -22.2% YOY) were significantly below the level of the same period last year. New home prices in 70 major cities (Refinitiv estimate that -0.5% YOY) are the second consecutive month below previous year's level. And it's getting worse and worse, and we can see that the cash flow is deteriorating in the daily report.
In July, the new kind of coronavirus called "BA.5" spread in major cities such as Beijing and Shanghai in China, the uncertainty about the sustainability of the economic recovery is increasing. Shanghai start large-scale inspections since 19, the warnings are spreading about the re-imposition of strict activity restrictions such as restrictions on leaving homes and so on. Reportedly that in order to support the economy, in accordance with the comprehensive economic policy announced in May, Chinese government decided to increase the amount of special bonds issued by local governments. And also planned to set up a 500 billion yuan national infrastructure investment fund in July-September. In the second half of the year, in order to achieve the growth rate target that there was a shift in focus on economic policies rather than solving the address structural issues such as debt overhang.