Overview

• Although the headline rate of growth for China’s economy in Q1 2021 seems incredibly strong – at 18.3% yoy – quarterly growth data point to a weak start to the year – just 0.6%, which was the weakest increase since Q1 1999 (excluding the COVID-19 downturn). Our forecast for 2021 is unchanged at 9.5%. As COVID-19 related distortions wash out, we expect growth to slow below 6% in both 2022 and 2023, as the Chinese economy becomes more reliant on household consumption than industry.
• China’s industrial production grew by 14.1% yoy in March 2021, compared with an average 35.1% yoy increase in January and February. In seasonally adjusted terms, the month-on-month growth in industrial production slowed more modestly – down from 0.7% to 0.6%.
• Fixed asset investment grew somewhat more slowly in March – up by 19.4% yoy – following the strength of January-February that was even more distorted by COVID-19 restrictions in 2020. State-owned Enterprises provided the majority of investment growth in the early stages of China’s recovery from COVID-19, with private firms returning later in the year. Compared with March 2019, SOE investment was around 15% higher in March 2021, while private investment increased by just 4.4%.
• China’s trade surplus narrowed significantly in March – down to US$13.8 billion, compared with US$37.9 billion in February – driven by a surge in imports. The overall surplus has declined rapidly over the past few months, following a record high of US$78.2 billion in December 2020.
• Nominal retail sales grew strongly again in March – increasing by 34.2% yoy, following on from a 33.8% yoy increase in January and February. Compared with sales recorded in March 2019, the increase in real retail sales was around 8.9% – below the increase in industrial production, which reflects the degree to which China’s recovery has been led by the industrial sector. That said, the increase in real sales was larger than in February – just 2.4% – which suggests that consumers may be returning to the market.
• In the first three months of 2021, China’s new credit issuance totalled RMB 10.2 trillion, a decrease of 7.9% yoy. Bank lending accounted for the largest share of new issuance, with loans increasing by 8.8% yoy to RMB 8.1 trillion. In contrast, non-bank lending has declined significantly – down by 42% yoy to RMB 2.1 trillion. The main driver of this fall was a slowdown in government and corporate bond issuance.
• The People’s Bank of China (PBoC) has held policy rates stable since April 2020 and is yet to indicate any intention to raise rates – aided by low rates (with a stable outlook) from other major central banks providing little external pressure. Instead Chinese authorities have signalled that they aim to slow credit creation in coming months, with more targeted support for key sectors negatively impacted by the pandemic.

For further details, please see China’s economy at a glance April 2021