【Economic Perspectives】China Economy in Jul – Mild pace of recovery

China’s checkmark-shaped recovery entered a stabilizing period, where the economy is improving but the rebound becomes less vigorous whether in terms of industrial activities, FAI or consumption. Employment situations also stabilized, with 1.07 million people added to urban employed population and unemployment ratio stayed unchanged at 5.7%. We expect mild pace of recovery to continue in the upcoming months. High-tech industries and infrastructure investment will remain the primary contributors to economic growth.


  • Industrial value-added maintained expansion pace at 4.8% YoY in Jul. Manufacturing sector output increased 6.0% YoY, up 0.9ppt from Jun, whereas growth of mining and utilities supply decelerated. Equipment and high-tech manufacturing output expanded 13%/9.8% in Jul, vs. 9.7%/10.0% in Jun and continued to outpace overall manufacturing output growth. Boosted by recovering downstream demand, production of automobiles, construction machinery, industrial robots, smart phones and computers reported double-digit expansion.


  • Urban FAI declined 1.6% in Jan-Jul, narrowing 1.5ppt from 1H20. Among the major component, 1) manufacturing FAI declined 10.2% in Jan-Jul, narrowing 1.5ppt from 1H20. FAI of high-tech manufacturing increased 7.4% YoY, among which computer, tele-communications and electronic equipment industry documented 10.7% YoY FAI growth. 2) Infrastructure FAI declined 1.0% in Jan-Jul, narrowing 1.7ppt from 1H20. Its rebound was impeded to some extent by the flooding and stormy weather in summer. We forecast annual growth for infrastructure FAI to be around 5.0%. 3) Real estate FAI growth accelerated 1.5ppt from 1H20 to 3.4% YoY in Jan-Jul on back of both construction and land acquisition expenditures. We think this firming-up trend may continue into 3Q.


  • Consumption decline narrowed, though at a decelerating pace. Retail sales decreased 1.1% in Jul, vs. 1.8% in Jun. The Jul data was underpinned by 1) stronger car sales, +12.3% YoY in the above-designated sample; 2) accelerated recovery of catering and restaurant services – catering revenue narrowed decline to 8.2% YoY for the above-designated sample; 3) strong momentum of online goods sales +15.7% YoY in Jan-Jul. However, excluding car sales, retail sales decline enlarged to 2.4% in Jul from 1.0% in Jun, indicating that overall consumption recovery may still remain lackluster. Moreover, there still exist gap between large retailers and smaller retailers, indicating unbalanced recovery.


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