• China’s latest economic data continue to point to a muted recovery from COVID-19 constraints, with stronger performance from the supply side (given growth in industrial production and investment) than the demand side (with retail sales still contracting). Export markets are still constrained, meaning that these relatively weak conditions may continue. Our forecasts are unchanged – with economic growth of 1.0% in 2020 (the weakest growth rate since 1976), before increasing by 9.75% in 2021.
• Growth in China’s industrial production picked up in May, rising by 4.4% yoy (compared with 3.9% yoy in April). Although this represents a substantial improvement from the deep declines recorded in February and March, it is worth noting that this increase remains below the trend typical prior to the COVID-19 outbreak.
• Growth in fixed asset investment accelerated in May, increasing by 3.9% yoy (compared with a 0.7% increase in April and steep falls in the first quarter). Producer prices have contracted in recent months, lowering the cost of investment goods, meaning that there has been a far larger increase in real investment – up by around 8.2% yoy (from 4.4% yoy in April).
• China’s trade surplus surged in May – totalling US$62.9 billion (compared with US$45.3 billion in April). This was the largest trade surplus on record, reflecting a month-on-month fall in imports that was partly price related, while exports modestly increased from April, with medical supplies contributing to this trend.
• China’s retail sales fell again in year-on-year terms in May, albeit more modestly than in the first four months of 2020. In nominal terms, sales declined by 2.8% yoy, compared with -7.5% yoy in April and -15.8% yoy in March. Retail price inflation slowed in May, meaning that real retail sales fell by 3.7% yoy (compared with a 9.0% fall in April).
• There was another surge in credit issuance in May – totalling RMB 3.2 trillion (following on from a RMB 3.1 trillion increase in April). Bank loans only accounted for around half of this increase, with large scale government bond issuance driving non-bank credit.
• Directing credit to small and micro sized businesses remains a priority for Chinese authorities – attempting to counter the long term trends of large banks prioritising lending to large state-owned enterprises. In early June, the People’s Bank of China (PBoC) announced that it will introduce a RMB 400 billion quota to purchase 40% of SME loans issued by local banks between March and December.

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