Overview

• Interpreting Chinese data will become more challenging for the next few months – due to the extreme base effects related to restrictions imposed to control the spread of COVID-19 in early 2020. Few official Chinese data series are seasonally adjusted, meaning that comparing year-on-year trends is the typical approach. Year-on-year growth rates of many indicators will be extremely large for the next few months, until the sharp falls following last year’s lockdown drop out of the calculations. An example of how this can distort the underlying picture is the over 60% yoy increase in the value of China’s exports across January and February, even as business surveys indicate a weakening in new export orders.
• Growth in China’s industrial production surged by 35.1% yoy across January and February, a record high, however month-on-month data show weaker growth than during the period from April to October 2020, as China’s manufacturers were recovering from COVID-19 shutdowns. These data also highlight how much China relied on the industrial sector for its recovery – industrial production was around 17% higher than January-February 2019, whereas retail sales were just 6.4% stronger.
• China’s fixed asset investment grew strongly in the first two months of 2021, rising by 35% yoy. Growth in private sector investment outpaced that of state-owned enterprises in early 2021. SOEs provided the majority of investment growth in the early stages of China’s recovery from COVID-19, with private investment overtaking the state sector in Q4 2020.
• In the first two months of 2021, China’s trade surplus averaged US$51.6 billion, compared with a record high of US$78.2 billion in December 2020 and an average US$3.7 billion trade deficit across January and February 2020. There remains limited clarity around the Biden Administration’s approach towards the US-China trade relationship, albeit it is unlikely to return to the openness of the Obama Administration. China’s trade surplus with the US has steadily increased from early 2020 lows – totalling a new record high of US$349.2 billion in the twelve months to February 2021. This could further escalate tensions between the two countries.
• In the first two months of 2021, China’s new credit issuance totalled RMB 6.9 trillion, an increase of 16.1% yoy. The bulk of this increase occurred in February – reflecting the sharp decline in new credit in February 2020 due to the impact of COVID-19 restrictions. Bank lending grew comparatively rapidly over the first two months, while non-bank lending declined overall.
• Authorities are attempting to unwind emergency support measures. At the Central Economic Work Conference in late 2020, the PBoC signalled it intends to slow credit creation in coming months, but it is not necessarily set to increase the policy rate. Tighter restrictions on property lending could form part of this strategy. This monetary tightening is set to be paired with a fiscal contraction as well. Due to the opaque nature of local government finances, it is difficult to be clear around the size of the contraction – but some early estimates put it in the range of 2-3% of GDP.

For further details, please see China’s economy at a glance – March 2021