Chinese economy has reported a solid yet uneven recovery in the second quarter, with industrial production significantly outpacing consumer demand. In this note, we provide an overall assessment of China’s recovery, six months after the COVID-19 outbreak. Construction, driven by infrastructure and property investment, played the major role in China’s return to 3.2% headline GDP growth in Q2, supporting demand for upstream and heavy industries dominated by state-owned firms. Lagged infrastructure spending can continue to drive the ongoing sequential recovery for the next few months, but absent improvement in household incomes or employment, China’s recovery will remain imbalanced, and cyclical industrial activity will slow later in the year and into 2021.
