Overview

• Trade tensions between China and other economies remain a key issue – given the rapid ramp up in China’s export volumes since mid-2023. This culminated in the European Union announcing tariffs in Chinese electric vehicles in June. While the increase in tariffs was not as significant (in percentage terms) as those announced by the United States in May, the EU measures carry greater significance given that the region is a major importer of Chinese EVs (whereas US imports were negligible). The key question is how (and to what extent) China retaliates to these tariffs – given the potential for tit-for-tat measures that could result in a trade war similar to that between China and the United States starting in 2018. Overall, our forecasts for China’s growth rate are unchanged – we see its economy expanding by 4.5% in 2024 and 4.8% in 2025.
• Growth in China’s industrial production slowed a little in May, continuing the recent volatile track. Output rose by 5.6% yoy, down from 6.7% yoy in April. Trends within individual industries varied widely in May – with strong growth in electronics (up by 14.5% yoy), while cement manufacturing – closely tied to the construction sector – contracted by 8.2% yoy.
• China’s real fixed asset investment grew at a slower pace in May – increasing by 3.2% yoy (down from 4.4% yoy in April). There has been a wide disparity between the nominal investment trends of state-owned enterprises (SOEs) and private sector firms since early 2022, albeit the gap narrowed slightly in May.
• China’s trade surplus expanded once again in May – increasing to US$82.6 billion (from US$72.4 billion in April). The value of imports eased slightly month-on-month, while exports rose.
• China’s real retail sales growth edged up in May, increasing by 3.4% yoy (compared with 2.0% yoy in April). Looking through the volatility of the COVID-19 pandemic, this remains a historically subdued rate of growth – pointing to the continued weakness in domestic demand.
• China’s new credit issuance contracted over the first five months of 2024 – down by 14.6% yoy to total RMB 14.8 trillion. That said, issuance grew relatively rapidly in May (driven primarily by government bonds), following on from extremely weak conditions in April.
• Since cutting the Reserve Requirement Ratio in early February (which boosted the funds available for banks to lend), the People’s Bank of China (PBoC) has so far resisted further monetary easing. This is despite the weak loan demand – particularly from the household sector.

For further details please see China’s economy at a glance (17 June 2024)