Perhaps no sector epitomizes the trajectory of China’s current recovery better than autos. Production has rebounded quickly as factories have restarted (Q2 auto output has risen by +14.1% y/y, from –45.1% in Q1), led by commercial vehicles, and anchored by demand from infrastructure expansion. But sales of passenger cars have been much softer (wholesales +2.1% y/y in June, retail -6.2% y/y), with a much more pessimistic outlook for the second half of the year. A weaker global economy will take its toll on China’s industrial sectors, despite policymakers’ efforts to shift manufacturers’ focus to domestic demand. The limited policy response directed at domestic consumption so far will limit the scale and longevity of China’s recovery.
