• China’s latest economic data showed little change in either industrial production or investment – key drivers of its economic recovery from COVID-19 – however stronger growth in retail sales data suggests that household consumption may finally be recovering. Our forecasts are unchanged, with China’s economy forecast to expand by 1.8% in 2020 and 9.5% in 2021.
• Growth in industrial production was marginally stronger in November – increasing by 7.0% yoy (compared with 6.9% yoy in both September and October). Compared with pre-COVID-19 rates of growth, the increase in industrial production remains strong.
• Fixed asset investment grew at a marginally slower rate – up by 11.3% yoy (from 11.7% yoy previously). Despite this easing, real investment remains particularly strong when compared with recent history.
• China’s major manufacturing surveys showed improving measures for new orders – with domestic orders picking up more strongly than export ones. This could point to a recovery in domestic consumption – with China’s recovery since April having largely been driven by production.
• The gradual recovery in China’s consumption continued in November – with real retail sales up by 6.2% yoy (from 4.6% yoy previously) – marginally below the average recorded across the first half of 2019.
• China’s trade surplus rose to a record high in November, reflecting a larger month-on-month increase in exports than the rise in imports. The surplus totalled US$75.4 billion (compared with US$58.4 billion in October). The United States continues to account for a sizeable share of China’s trade surplus, and in recent months, this surplus has been trending higher again – having shrunk following the US-China trade war. At this stage it is unclear how the incoming Biden Administration in the United States will respond to this trend.
• In the first eleven months of 2020, new credit issuance totalled RMB 33.2 trillion, an increase of 41.3% yoy. Bank loans accounted for the largest share of this total – at RMB 19.1 trillion – however bank lending has grown comparatively slowly, up by 21.8% yoy. Growth in government and corporate bond issuance has been much stronger.
• The People’s Bank of China (PBoC) cut interest rates to support the recovery from COVID-19 countermeasures, however it cut rates more modestly than other central banks, and has kept them on hold since April. The bank has also added liquidity to financial markets, maintaining interbank rates below pre-COVID-19 levels. Reports suggest that the PBoC is considering unwinding some of this support – given existing risks related to high corporate debt levels and the potential for asset price bubbles – however some former bank officials have speculated that it may keep measures in place until the second half of 2021.

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