Overview

• Reflecting the impact of the latest COVID-19 wave on activity across October and November, we have lowered our full year forecast for China’s economic growth to 3.1% (from 3.4% previously). Stronger base effects lead to a small upgrade to 2023 – to 5.2% (from 5.0% previously). The easing of public health policies (see page 3) could provide a boost (once China is through a volatile transition period) however the downturn in the property sector continues to present downside risk.
• Growth in China’s industrial production slowed significantly in November, as various major industrial centres were impacted by the latest major COVID-19 wave. Industrial production increased by 2.2% yoy (compared with 5.0% yoy in October).
• China’s fixed asset investment slowed substantially in November – we estimate that real investment rose by 0.4% yoy in November (down from 4.6% yoy previously). There remains a significant difference between investment by private sector firms and State-owned enterprises (SOEs), with the latter the key driver of growth. That said, growth in investment by SOEs slowed in November – down to 4.7% yoy (from 12.3% yoy previously).
• China’s trade surplus narrowed in November – reflecting a month-on-month fall in the value of exports, while imports trended modestly higher. The trade surplus totalled US$69.8 billion (compared with US$85.2 billion previously).
• The impact of the latest COVID-19 wave was clearly evident in retail sales data – with real sales falling by 7.6% yoy in November (compared with a 2.7% yoy decline in October). That said, this downturn was less significant than those associated either of the previous two large waves.
• In the first eleven months of 2022, new credit issuance increased by 5.9% yoy to RMB 30.7 trillion – with the rate of growth slowing since June. Overall, bank loans accounted for the largest share of new credit, however new bank loans contracted over this period – down by 0.2% yoy. In contrast, non-bank lending increased by 17.6% yoy over the first eleven months of the year, with government bonds issuance the key driver.
• Monetary policy effectiveness has been limited in recent times, with comparatively strong increases in liquidity (as measured by growth in M2 money supply) and slower growth in lending. This suggests weak demand for credit (particularly from the household sector), and it remains to be seen whether easing of COVID-19 public health policies will support a rebound, particularly given the weakness in the property sector.

For further details, please see China’s economy at a glance (December 2022)