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As the first country to emerge from the coronavirus crisis, what’s the outlook for the world’s second-biggest economy? Peiqian Liu considers what Chinese economic data for April can tell us.
Industrial production beats expectations
Chinese industrial production rose by 3.9% year-on-year in April, ahead of consensus expectations of 1.5% and up from -1.1% in March. Manufacturing output was up 5.0% year-on-year, but power supply only increased by 0.2% year-on-year.
The prospects of a continued recovery in external demand remain bleak as many other countries remain in lockdown.
Chinese consumers still cautious
The recovery in retail sales (-7.5% year-on-year in April, up from -15.8% in March) is lagging that of the industrial sector.
Digging into the data shows that consumption requiring face-to-face interaction, such as restaurant (down -27.9% year-on-year), clothing (-18.5%) and jewellery (-12.1%) sales, was the main drag. Chinese consumers are clearly still acting cautiously in the midst of a global pandemic and are mindful of the risk of a second wave of infections in their own country.
Auto sales, by contrast, recovered to flat year-on-year growth, up from -18.1% in March. We think even greater demand for cars could be unleashed if local governments ease the administrative hurdles to car ownership.
Fixed asset investment still a big problem to be addressed
At first glance, fixed asset investment figures paint a depressing picture – it was down -10.3% year-on-year in the first four months, with both manufacturing (-18.8% year-on-year) and infrastructure (-11.8%) investments still in deep contractionary territory.
That said, these figures were up from the record lows they plunged to in Q1. What’s more, property investments were relatively resilient, down just -3.3% year-on-year, up from -7.7% previously.
We expect the government to accelerate infrastructure investments by issuing more special bonds and approving further big-ticket projects. Unfortunately, the outlook for the manufacturing sector looks bleaker due to slowing external demand.
Employment remains under pressure
The employment sector also continues to struggle. The official surveyed unemployment rate inched up by 0.1 percentage point to 6.0% in April, well above its 5.0–5.3% range last year. Over a million jobs have been lost during the coronavirus crisis, so we expect policy makers to prioritise employment in this year's National People's Congress.
What can we expect from here?
The April data indicates that China’s economic recovery is being led by supply-side production, with the pick-up in demand still falling short of expectations. This highlights the urgent need for stimulus to shore up domestic demand.
We expect the authorities to step up to the plate by announcing stronger fiscal easing policies and targeted monetary easing in the upcoming National People's Congress starting on 22 May. That said, officials are likely to remain wary about excessive debt accumulation and refrain from using 2009 style aggressive monetary easing.
While we expect China’s growth momentum to improve, the path of recovery will be complicated by the ongoing coronavirus pandemic. The government is therefore likely to focus on the quality of growth and announce a more flexible growth target.