• China’s policy makers are likely to boost domestic support in the wake of the deteriorating trade relationship with the United States. The PBoC’s Governor suggested a range of measures in early June, including cutting interest rates, lowering the required reserve ratio and other monetary policy tools along with increased fiscal policy support. This domestic policy response remains the key driver for us to maintain our growth forecasts at 6.25% this year, 6% in 2020 and 5.8% in 2021.
• Growth in industrial production slowed in May, down to 5.0% yoy (compared with 5.4% yoy in April). This was the slowest monthly increase since the January-February period of 2009 – the bottom of the Global Financial Crisis. There was some divergence in PMI trends in May, with the official NBS measure turning negative, while the private sector Caixin Markit survey was unchanged at neutral levels.
• Growth in real investment fell in May – down to 3.8% yoy (from 4.9% previously). The slowing trend has been driven by private sector firms, while investment in manufacturing and infrastructure were particularly weak.
• China’s trade surplus widened again in May (compared with a relatively narrow surplus in April), as exports rose and imports fell month-on-month. The United States accounts for the majority of China’s trade surplus. With tariffs implemented by both countries, both exports and imports have fallen, but this has not substantially reduced China’s trade surplus with the US – which rose to a record US$329.8 billion for the twelve months to May.
• Despite a modest upturn in May, real retail sales growth remained historically weak. In part this likely reflects the tightening in shadow banking which is constraining consumers – particularly in the auto sector. However, consumer confidence has remained high – picking up to 125.3 points (from 124.1 points in March), just below an all time high in February.
• New credit issuance has continued to grow strongly in May – reflecting the short term priority of policy makers to support growth overtaking the medium term deleveraging goals of the previous two years. In the first five months of the year, new credit issuance increased by over 27% yoy, to total RMB 10.9 trillion.
• The period of high volatility in short term interbank rates continued in May and early June. Since the start of May, the 7 day Shanghai Interbank Offered Rate (Shibor) has traded in a range of over 50 basis points – well above the typical range exhibited since November 2015 (when monetary policy switched to targeting this rate). Longer dated rates have fallen considerably since early 2018 – but have trended marginally higher since early April.

For further details, please see China’s economy at a glance – June 2019