Overview

• There was nothing in China’s latest data release to fundamentally change our views around its economy – authorities continue to prioritise the supply side of the economy, which, in the face of subdued domestic demand, is expanding export volumes and leading to growing trade tensions with other major economies. Our forecasts are unchanged – we see growth at 4.7% this year (below the full year target) and easing further to 4.6% in 2025 and 4.4% in 2026.
• Growth in industrial production has trended lower in recent months, down to 5.1% yoy in July (compared with 5.3% yoy in June and 6.7% yoy in April). While conditions in construction related sectors remains weak, output in the electronics sector remains comparatively strong.
• There was a noticeable slowing in real investment growth in July, down to 2.7% yoy (from 4.4% yoy previously) – the weakest rate of growth since November 2022. While investment by SOEs still outpaces private firms, there was a notable slowing in nominal SOE investment growth in July.
• China’s trade surplus moved lower in July – down to US$84.6 billion (compared with a record high of US$99.0 billion in June). Despite the softening, this surplus was the sixth highest on record. The decline reflected a modest month-on-month easing in the value of exports and a similarly sized pickup in imports.
• There was a modest acceleration in real retail sales growth in July – up by 2.2% yoy (from 1.8% yoy previously). This is a low rate of growth when compared with the pre-pandemic period – pointing to subdued domestic demand.
• China’s new credit issuance totalled RMB 18.9 trillion in the first seven months of 2024, down 14.6% yoy. Bank loans, which account for the largest share of credit issuance, continued to fall more rapidly than the average, down by 21.2% yoy to RMB 12.3 trillion – with local currency bank loans contracting in July (in net terms) for the first time in 19 years.
• The People’s Bank of China (PBoC) marginally eased monetary policy in July, with 10 basis point cuts to both the seven day reverse repo rate (to 1.7%) and the Loan Prime Rate (to 3.35%) in late July. The PBoC followed this with an out-of-schedule 20 basis point cut to the Medium Term Lending Facility (MLF) rate on 25 July. While the PBoC has been looking to ease monetary policy to provide some support to the broader economy, it appears that loan demand remains weak and that households and businesses are attempting to pay down debt more rapidly, meaning that modest cuts are unlikely to stimulate significant growth.

For further details please see China’s economy at a glance (15 August 2024)