Overview

• Overall, while China’s partial economic data for May was somewhat improved when compared with April, they continue to point to the impact of COVID-19 restrictions that constrained activity, particularly on the demand side of the economy. While measures in many major centres (most notably Shanghai and Beijing) were eased substantially at the start of June, there are concerns at the time of writing that some restrictions may be re-imposed following another increase in COVID-19 case numbers. This serves to highlight the ongoing uncertainty around China’s economic outlook, given the continuation of zero-COVID public health policies. For now our forecasts remain unchanged, with China’s economy to grow by 4.2% in 2022, 5.6% in 2023 and 4.9% in 2024, however we continue to note downside risks related to any further COVID-19 outbreaks.
• China’s industrial production grew marginally in May – up by 0.7% yoy – compared with the 2.9% yoy fall recorded in April, while real fixed asset investment growth returned to zero, compared with a 3.5% yoy contraction previously.
• China’s trade surplus climbed significantly in May, increasing to US$78.8 billion (from US$51.1 billion in April) – the fourth highest monthly total on record. While the value of imports remained relatively stable in May, there was a sharp increase in export values.
• China’s retail sales remained weak in May, with consumer demand continuing to be impacted by various COVID-19 lockdowns and the uncertainty related to China’s public health policies. Real retail sales contracted by 9.7% yoy (compared with a 14.0% fall in April).
• In the first five months of 2022, new credit issuance increased by 11.8% yoy to RMB 15.8 trillion. Although bank lending accounts for the largest share of new issuance, it contracted by 1.8% yoy over this period. In contrast, non-bank lending rose by almost 56% yoy over the first five months, with government bond issuance the key driver.
• There is already limited scope for the People’s Bank of China to cut its benchmark policy rate, and further tightening in policy by advanced economies will add additional pressure. Since the start of April, the yield on 10 year US Treasuries has exceeded 10 year Chinese government bonds, and the gap has continued to widen. Monetary policy imbalance between China and other major central banks risks capital outflows that could destabilise China’s financial sector as well as placing further pressure on the exchange rate.

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