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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A Brief Overview of Credit Conditions

In our recent discussions with clients, we have found differing views on the state of China’s credit growth and the credit impulse this year. This brief note summarizes our assessment of China’s credit conditions so far in 2020, and the outlook for the next six to nine months. Overall credit growth rates are stronger, around 10-11%, and the credit impulse is positive, but credit growth likely peaked in June. Property sector restrictions should weaken credit growth in the coming months, and shadow banking channels continue contracting. In addition, credit has been distributed unevenly across provinces, stalling the recovery.

Posted October 18, 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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