Overview

• China’s national accounts data showed a slowing trend for growth in Q2, with the headline series expanding by 4.7% yoy (down from 5.3% yoy in Q1). There was a larger slowdown in China’s services sector than in its manufacturing & construction industry – with weak domestic demand negatively impacting the former, while the surge in export volumes has helped to underpin the latter. This appears far from sustainable – given growing trade tensions with major export markets and sluggish global growth. We have modestly revised our full year forecasts for China’s economy – given that our previous view for 2024 was on the low side. We see growth at 4.7% this year (from 4.5% previously) – below the target of “around 5%”. We have revised the forecast for 2025 lower to 4.6% (previously 4.8%).
• China’s industrial production growth slowed further in June – increasing by 5.3% yoy, compared with 5.6% yoy in May and 6.7% yoy in April. Strong growth in electronics output was in contrast with weakness in construction-related heavy industry.
• Growth in China’s nominal fixed asset investment was marginally stronger in nominal terms in June, but weaker in real terms down to 4.4% yoy (from 4.9% yoy previously). The property sector remains a drag on investment, having contracted year-on-year for 28 months in a row.
• China’s trade surplus rose to a record high in June – up to US$99.0 billion – from US$82.6 billion in May. This reflected a month-on-month acceleration in the value of China’s exports, while imports weakened.
• Real retail sales growth was 1.8% yoy in June, the weakest result December 2022, which was negatively impacted by the Omicron wave of COVID-19 and the sudden end of zero-COVID policies. This continues to point to the soft domestic demand conditions that have persisted since the pandemic.
• China’s new credit issuance totalled RMB 18.1 trillion in the first half of 2024, representing a year-on-year contraction of 16.0%. Although bank loans continue to account for the largest share of lending, this lending fell relatively more rapidly – down by 20.1% yoy to RMB 12.5 trillion.
• The People’s Bank of China (PBoC) is facing an increasingly challenging environment in which to manage monetary policy. Yields on government bonds have fallen rapidly since late November 2023, in stark contrast to trends in advanced economies (where US Treasury yields have trended higher since December) – which could encourage further capital outflows. In early July, the central bank announced that it had secured deals with several institutions to borrow long dated government bonds and sell them into the market to drive down bond prices (and thereby increase yields).

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