• According to the latest national accounts data, China’s economy contracted by 6.8% yoy in Q1 2020, the first contraction in quarterly data on record (which commenced in 1992). This is the first time Chinese authorities have reported a negative GDP result since an annual decline in 1976.
• China’s economic growth will slow considerably in 2020 – reflecting the scale of the downturn in Q1. We expect the rebound in activity – which started in the industrial sector in March – will be spread across Q2 and Q3. For the full year, we forecast limited growth in China’s economy – just 1.0% – which would be the weakest rate of growth since 1976. The resumption of normal activity will result in a rapid increase in year average growth in 2021 – which we forecast at 9.75%. While this would represent the strongest annual growth rate since 2010, it is worth noting that China’s economy will be smaller at the end of 2021 under our current profile than if our pre-Covid-19 forecasts had eventuated.
• The fall in quarterly GDP was driven by a plunge in activity in February with a robust recovery evident in the March data. Industrial production in month-on-month terms, having fell by 23% in February but rebounded strongly in March – up by 32% mom. This would suggest that production was equivalent to 96% of its December level, a considerably stronger recovery than indicated by the PMI surveys.
• China’s trade balance returned to surplus in March – totalling US$19.9 billion, compared with a US$7.1 billion deficit across the first two months of the year. Exports rebounded more rapidly than imports from the weak levels across January and February, despite the ramping up of Covid-19 containment measures in key markets – which presents a negative outlook for Chinese exports in the near term. Some of the pickup in exports reflected the delivery of delayed orders from the first two months.
• China’s retail sales fell again in March – down by 15.8% yoy – following on from a 20.5% yoy decline during January and February. Given that consumer prices have continued to increase – largely driven by pork prices – real retail sales declined more rapidly, down by 18.1% yoy (compared with almost 24% yoy over the first two months).
• In the first quarter of 2020, new credit issuance rose by 28.7% yoy to RMB 11.1 trillion. Bank lending provided the single largest source of new credit – increasing by 17.9% yoy to RMB 7.4 trillion. Policy makers have been urging banks to expand lending, particularly to small-to-medium sized firms. Within non-bank lending, corporate bond and government bond issuance surged, with other categories relatively muted.
• The PBoC has eased monetary policy further this month (albeit far more modestly than other central banks). The PBoC cut the rate on its one year Medium Term Lending Facility (MLF) by 20 basis points in mid-April to 2.95%. The MLF is the reference rate used to price the Loan Prime Rate (China’s main monetary policy rate) – which is likely to be cut by 20 basis points on 20 April. The PBoC has also announced cuts to the Required Reserve Ratio for small banks – boosting their capacity to lend.

For further details, please see China’s economy at a glance – April 2020