China’s real GDP growth recorded +3.2% YoY in 2Q20, representing a significant rebound from -6.8% YoY in 1Q20. Real GDP growth in 1H20 was -1.6% YoY. Overall speaking, supply recovery was speedier and more significant, with industrial activities and secondary industry output advancing month by month. Demand side, however, is only slowly catching up. We have observed positive signs of demand recovery in PMI, inflation and trade data in Jun, but consumption demand, weighed on by lackluster household income growth, may take a shallower trajectory of rebound after the pandemic.
- Industrial value-added increased 4.8% YoY, up 0.4ppt from May. Manufacturing value-added kept steady growth around 5.0% YoY since Apr, inching towards pre-pandemic levels. High-tech manufacturing and equipment manufacturing output growth continued to outpace overall, increasing 10.0%/9.7% YoY in Jun. Computers, communications & electronic equipment manufacturing and automobile manufacturing value-added increased 12.6%/13.4% in Jun, respectively.
- Urban FAI decreased 3.1% YoY in 1H20, narrowing 3.2ppt from the Jan-May period. Monthly growth turned positive, up 0.9%/1.1% YoY in May/Jun. 1) Manufacturing FAI narrowed decline to 11.7% YoY in 1H20, among which FAI of high-tech industries increased 5.8% YoY. 2) Infrastructure FAI decreased 2.7% YoY in 1H20. Speed of rebound decelerated a bit in Jun possibly due to stormy weather conditions and slowdown of local government special bond issuance in Jun. 3) Real estate investment turned positive, up 1.9% YoY in 1H20. Both land acquisition investment and construction investment have been picking up vigorously since Mar.
- Retail sales continued to narrow its decline in Jun to -1.8% YoY (-1.0% excluding car sales). However, speed of recovery decelerated and was a bit disappointing partly due to last year’s high base. Growth of above-designated-size sample retreated to negative growth of -0.4% in Jun. Thanks to the “6.18” shopping season, home appliances, cosmetics, daily necessities, etc. recorded decent growth.
- Our major concerns lie in 1) Employment and income growth. Although employment situations are improving, disposable household income decreased 2.0% YoY in real terms in 1H20, lagging behind GDP growth; 2) Policy boost. In the post-pandemic era, policy incentives should be designed with greater precaution, to avoid overdraft of future demand or causing oversupply. We also think policies should be more targeted to help SMEs, in particular SMEs in the tertiary sector.
