Q3 2020 China Macro Data Recap

China’s official Q3 macroeconomic data showed a continued post-COVID recovery, with real GDP growth accelerating to 4.9% y/y. However, the data releases were notable in their inconsistencies, and do not offer a coherent explanation why China’s unbalanced recovery is extending. In particular, industrial output growth accelerating to an 18-month high of 6.9% is difficult to reconcile with several heavy industrial components reporting slower growth, and clear signals of weakening property construction, as well as building deflationary pressures. External trade remains a bright spot, as China’s imports surprised positively to a new monthly record over $200 billion, with chips and imports from the United States leading the way.

Posted October 19, 2020
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Autos Driving China’s Recovery…But For How Long?

The auto sector has replaced property and infrastructure construction as the primary driver of China’s economic recovery in Q3 2020, boosting both industrial production and retail sales. However, cargo trucks and commercial vehicle sales are primarily responsible for the boost—passenger car demand remains subdued. There is no corresponding spike in fuel sales nor in cargo transport volumes on roads, suggesting the pickup in sales is driven by a program of government subsidies to replace older polluting vehicles. Headline auto sales and output growth will likely stay high for the rest of the year, but will drop in the first half of 2021 after this subsidized replacement demand expires.

Posted October 13, 2020
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Dubai on the Bohai?

The government of the province-level municipality of Tianjin is currently facing significant financial stress. Local GDP has been revised lower for the second time in three years, debt service is consuming significant proportions of new credit, and property prices are falling. Tianjin’s state-owned enterprises have defaulted on bonds and shadow banking products, and now the city’s second-largest local government financing platform, TEDA (Tianjin Economic-Technological Development Area), is facing rising financing costs as well.

Tianjin’s condition may be a bellwether for other troubled local governments unable to back up their implicit and explicit guarantees on assets and state-owned firms. As markets and lenders lose confidence in those guarantees, local credit growth, economic activity, and property prices will fall, deepening the local fiscal crisis. Tianjin’s condition is also likely to inspire speculation about the possibility of explicit bailouts of local governments by Beijing, similar to the late 2009 rescue of troubled Dubai.

Posted October 13, 2020
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