China economy: Coronavirus comeback kid
Chinese economic data
Chinese economic growth: The Chinese economy (GDP) expanded by 11.5 per cent in the June quarter (consensus: +9.6 per cent) after a 10 per cent contraction in the March quarter. GDP grew at a 3.2 per cent annual rate in the year to June (consensus: +2.4 per cent), following a 6.8 per cent contraction in the year to March. Economic activity contracted by 1.6 per cent in the first six months of 2020 from a year earlier.
China monthly activity data: Retail sales fell at a 1.8 per cent annual rate in June (consensus: +0.5 per cent). Industrial production rose at a 4.8 per cent annual rate (consensus: +4.8 per cent). Fixed-asset investment contracted at a 3.1 per cent annual rate (consensus: -3.3 per cent).
Property investment: Chinese property investment expanded at a 1.9 per cent annual rate over the year to June (consensus: +1 per cent).
Unemployment: The unemployment rate (nationwide survey-based jobless rate) fell to 5.7 per cent in June from 5.9 per cent in May (consensus: 5.9 per cent).
Home prices: New home prices rose at a 4.9 per cent annual rate in June – unchanged from May.
The Chinese data is important for exporters, especially rural producers, consumer goods, mining and energy companies.
What does it all mean?
• China’s economy bounced back in the June quarter after contracting in the March quarter by the most since at least 1992 (when quarterly records began) due to the coronavirus health crisis. After plunging to record lows due to virus lockdowns in March, activity data continues to improve with retail spending, industrial production and fixed asset investment all steadily lifting as government restrictions are eased. China’s return-to-work rate has climbed to over 90 per cent with larger industrial enterprises – oil refineries, steel mills and construction companies – mostly resuming operations.
• The recovery from the virus shock, however, remains lopsided. The supply-side of the economy has responded more quickly with a robust rebound in manufacturing and infrastructure-related public investment. In fact, investment by state-owned enterprises (SOEs) was up 2.1 per cent in June from a year ago.
• But private sector investment (down 7.3 per cent from a year ago), domestic demand and consumption all remain weak as consumer-facing restaurants and tourism companies struggle to get ‘back on their feet’ – operating well below pre-pandemic levels.
• Despite a decline in unemployment, retail spending disappointed in June – remaining in negative territory – and National Bureau of Statistics spokesperson Liu Aihua confirmed that China will need to increase efforts to stimulate consumption in the second half of 2020. Disposable incomes for both urban and rural residents fell 1-2 per cent in the first half of the year, placing downward pressure on consumption. Spending on ‘big ticket’ items like furniture and autos were down in June from a year ago. But spending on staples like grains and food were up in a continuing sign of consumer caution around the pandemic.
What do the figures show?
• The Chinese economy (GDP) expanded by 11.5 per cent in the June quarter (consensus: +9.6 per cent) after a 10 per cent contraction in the March quarter. GDP grew at a 3.2 per cent annual rate in the year to June (consensus: +2.4 per cent), following a 6.8 per cent contraction in the year to March. Economic activity contracted by 1.6 per cent in the first six months of 2020 from a year earlier.
• Retail sales fell at a 1.8 per cent annual rate (consensus: +0.5 per cent) in June after declining at a 2.8 per cent annual rate in the year to May. Over the year to June, spending fell the most at restaurants/catering (down 15.2 per cent); petroleum (down 13 per cent); automobiles (down 8.2 per cent) and jewellery (down 6.8 per cent). But spending lifted most on cosmetics (up 20.5 per cent); beverages (up 19.2 per cent); and communications appliances (up 18.8 per cent).
• Industrial production rose at a 4.8 per cent annual rate in June (consensus: +4.8 per cent) after lifting at a 4.4 per cent rate in May. Over the year to June, production rose the most for auto manufacturing (up 13.4 per cent); telecommunications/computer (up 12.6 per cent); and specially-used equipment (up 9.6 per cent).
• Fixed-asset investment fell at a 3.1 per cent annual rate in June (consensus: -3.3 per cent) after declining at a 6.3 per cent rate in May. Over the year to June, investment by the private sector fell 7.3 per cent, but investment by state-owned enterprises increased 2.1 per cent. By industry, investment in textiles was down 22.4 per cent, followed by car manufacturing (down 20.9 per cent); and general equipment (down 18 per cent). But investment in utilities rose the most (up by 18.2 per cent), followed by healthcare & social works (up 14 per cent).
• Chinese property investment rose at a 1.9 per cent annual rate over the year to June (consensus: +1 per cent) following a 0.3 per cent contraction over the year to May.
• The unemployment rate (nationwide survey-based jobless rate) fell to 5.7 per cent in June from 5.9 per cent in May (consensus: 5.9 per cent).
• New home prices rose at a 4.9 per cent annual rate in June – unchanged from May.
What is the importance of the economic data?
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 19th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10th of each month. China is Australia’s largest trading partner and changes in the Chinese economy have major implications for the Aussie economy.
What are the implications for investors?
• China’s economy is on the mend, but imbalances in the recovery remain. Policy support through fiscal spending, tax relief, cuts in lending rates and banks’ reserve requirement ratios have boosted factory production and state-sponsored infrastructure investment. Australia is benefiting from a strengthening in China’s iron ore demand – as construction activity picks up – with record shipments out of Port Hedland in June.
• Like Australia, China is also contending with setbacks – such as the recent Beijing virus outbreak and flooding in southern regions. But labour market conditions continue to improve. In the week ended July 10, data from Baidu showed searches for “shiye” (job losses in Chinese) were 28 per cent lower than the level in the week ended June 12. And consumer confidence could also be supported by the recent run up in the Chinese sharemarket to 5-year highs and the stabilisation of home prices.
Published by Ryan Felsman, Senior Economist, CommSec