In its release today of Q2 GDP data, the NBS highlighted high double-digit growth in NEVs and solar batteries. But there weren't too many other signs of strength, with property and consumption remaining weak.
Property prices fell again in June. That takes our measure of all-economy inflation back to the lowest since 2008. The deflation back then was reversed by enormous policy easing, but that sort of easing isn't at all likely this time.
The PBC continues to ease policy. But that isn't reducing market rates. There are a few possible reasons: the PBC is cutting slowly; rates never move with fundamentals; the market expects growth to improve. All have some validity, but we think there is a real risk of policy being behind the curve.
The statistical surge in exports of March and April has now disappeared from the data. That leaves both exports and imports falling YoY, and leading indicators don't point to either recovering yet.
Credit and money supply growth were soft in June. Without something changing, it seems unlikely there will be a rebound soon, with loan demand slowing, the property market weak, and liquidity preference still deteriorating.
Both PPI and CPI inflation fell in June, with the overall momentum in real economy prices is now the weakest since 2008-09. There are some tentative signs that a floor will soon be reached for PPI, but no signs of any significant upturn in inflation.
Orders-inventories did rise in the PMI today. But that is the one positive indicator. In most other ways, the PMIs were weak. Yesterday's Q2 surveys from the PBC also showed a fall in loan demand and continued weak price expectations. There's not much to suggest a turnaround in the cycle.
Today's data wasn't all bad, but the overall message is that economic momentum remains weak. With aggregate demand not strong enough to lift prices, deflation is worsening China's debt dynamics. In response, policy is once again loosening, but we think a real turnaround isn't likely yet.
The optimistic interpretation for the weak May PMIs is this is a soft patch that was inevitable after the strong Q1 bounce. But for manufacturing at least, that isn't especially persuasive, and the broad-based weakness of output prices is a warning of more more fundamental challenges.
If Japan's economic problems were about debt and deflation, then China is facing similar challenges. The one difference is the competitiveness of China's exporters. As a result, China is likely to see falling rates, but currency strength could be more of an issue for China than it was for Japan.
It has been a quiet few days for China data. What has emerged continues to look bearish, with the move of money into time deposits continuing, industrial prices falling more quickly, and corporate profits weakening.
Data inconsistencies are commonplace in economic analysis, and not just in China. Even so, that it is possible to claim that in the same month Chinese retail sales grew by 1%, 5% or 60% is problematic. We remain sceptical that the economy has recovered as much as official data suggest.
That property price inflation eased in April is no surprise, given the softening of all other real estate indicators this month. But it is still worth noting, especially given other data showing mortgage rates falling to new record lows. If policy can't turn the market around, then what can?
China's official activity data for April were soft, with IP, FAI and property construction contracting MoM, and retail sales slowing. Early indicators for May don't suggest a turnround, with the fall in industrial prices accelerating so far this month.
After a strong start to the year, April credit growth was weak. The apparently short-lived credit cycle is reminiscent of 2020, but three years ago and the economy was boosted by exports and property. Real estate is much weaker this time, with mortgage lending collapsing again in April.
That China is in deflation – both PPI and CPI fell MoM in April – while the rest of the world struggles with inflation really is a remarkable outcome. Underlying inflation isn't quite that weak: core CPI inflation remains around 0.7% YoY. But still, there really isn't upwards pressure on prices.
China's exports weakened a bit in April from the heady level of March, but remained strong relative to usual indicators of export demand. Imports remain weak, a reminder of the softness of the domestic industrial cycle. The trade surplus continues to widen.
The recovery in tourist numbers over the May holiday was impressive, and the Markit PMI was strong again. But our impression remains that the pickup in overall activity is underwhelming.
We've been more cautious on the outlook than the consensus, and remain so after the official April PMIs. The one indicator that gives us pause for thought is the strength of the construction PMI, but that would be more convincing if there were broader signs of the property cycle really lifting.
We had started to become hopeful that the property market was picking up, but transactions have fallen back down again in April. Other indicators for the industrial cycle also look bearish, with output prices weak, and profits still falling.
The sell-side and media consensus seems to be that the GDP data show clear recovery. Investors seem less convinced. We'd guess this reflects data discrepancies which undermine the headline message of recovery, and need to be resolved to have conviction that the cycle is gaining momentum.
Detailed GDP data show growth in Q1 being driven by consumption and investment, with zero contribution from net exports. Hospitality grew almost 15% YoY That's not as big a bounce as in 2020, but the base effect is smaller, and indeed, the government has revised up Q422 growth from zero to 0.6% QoQ.
The headline data for Q1 look better, but the details were much weaker. While YoY growth in retail sales rose over 10%, in MoM terms it fell back, with other data showing household income growth in Q1 remaining very weak. At best, the recovery remains fragile.
Exports in March were so strong, and the trade surplus so big, that we continue to think they must have been boosted by one-off effects. But it is worth asking the implications if that assumption is wrong, because if it is, it would matter for growth, the currency, and protectionism.
Chinese property prices rose in March. The increase was modest, but with transactions and mortgage lending also picking up, it is looking more likely that the property cycle really has turned. That in turn improves the prospects for the overall economy.
