20220816-招银国际-China_Economy_Growth_slowed_and_may_slowly_pick_up_ahead_7页_904kb

China Economy Summary

Core Content

China's economy experienced a slowdown in July 2022, primarily due to a confidence shock in the property market and the resurgence of new Covid-19 cases in some cities. Despite this, there is an expectation of gradual recovery in the second half of 2022 and the first half of 2023. The growth is anticipated to rise from 3.5% in 2022 to 6.5% in 2023, driven by policy support and economic resumption.

Main Views

• Growth Trends:

  • Growth slowed in July compared to June, with industrial output and service output indices showing a decline.
  • The property market faced significant challenges, with housing sales and development investment deteriorating.
  • Retail sales growth also slowed, though some sectors showed improvement.

• Property Market:

  • The property market saw a sharp drop in housing sales, with a 29.2% YoY decline in July.
  • High-tier cities performed better than low-tier cities, and the average sales price for commodity buildings continued to rise.
  • Developers are under stress due to declining land purchases, new starts, and development investment.
  • The government is expected to maintain easing liquidity and credit policies to stabilize the housing market.

• Consumer Confidence and Retail Sales:

  • Consumer confidence was impacted by both the housing market slump and the resurgence of the pandemic.
  • Retail sales growth slowed to 2.7% YoY in July, but certain sectors like catering and petroleum products showed improvement.
  • It is expected that retail sales will gradually recover over the next four quarters with continued economic reopening and employment improvement.

• Manufacturing and Infrastructure Investment:

  • Manufacturing investment slowed, while infrastructure investment remained strong.
  • Infrastructure investment growth reached 11.5% YoY in July, with strong performance in sectors related to grain and energy supply security.
  • Manufacturing investment is expected to continue slowing in the next few months before stabilizing as the economy resumes.

• Export and Import Trends:

  • Goods exports maintained high growth in July, driven by China's price advantage, but sustainability is under question due to global recession risks.
  • Imports of goods showed a decline in YoY growth, indicating weaker demand.

Key Information

• Economic Outlook: China's economy is expected to be in a gradual resumption phase from 2H22 to 1H23.
• Policy Support: The central bank (PBOC) is likely to maintain easing liquidity and credit policies.
• Fiscal Constraints: Local governments are facing fiscal resource constraints, limiting the ability to sustain zero-Covid policies.
• Sectoral Performance:
  • Property: Slowed in July but may recover slowly.
  • Retail Sales: Slowed in July but expected to improve in the coming quarters.
  • Manufacturing: Investment may slow further before stabilization.
  • Infrastructure: Investment remains strong but may slow due to lack of new fiscal stimulus.
• Challenges: Weak housing market, sluggish consumer confidence, and overseas recession risks are major challenges.

Figures and Data

• Figure 1: Economic indicators show a slowdown in July, with VAIO and service output indices declining.
• Figure 2: Property market indicators highlight the deterioration in housing sales and development investment.
• Figure 3: Housing sales by cities show a more pronounced decline in lower-tier cities.
• Figure 4: Funding source for property investment indicates a significant drop in total fund sources.
• Figure 5: FAI by sector shows manufacturing and infrastructure investment trends.
• Figure 6: FAI in agriculture and infrastructure sectors show strong growth.
• Figure 7: FAI in infrastructure and social service sectors also show strong performance.
• Figure 8: Household income and rent data indicate economic pressure on residents.
• Figure 9: Consumer confidence data reflects the impact of the housing market and pandemic on consumer sentiment.
• Figure 10: Urban surveyed unemployment rates show a slight decline.
• Figure 11: Employment Index shows improvement in employment conditions.
• Figure 12: Retail sales data shows a slowdown in July.
• Figure 13: Retail sales of staples and garments indicate mixed performance.
• Figure 14: Retail sales of some durables show improvement in certain categories.
• Figure 15: Production of energy and steel products shows fluctuating trends.
• Figure 16: Production of machine tools and automobiles shows a decline in growth.
• Figure 17: VAIO in equipment industries shows mixed performance.
• Figure 18: New Covid-19 cases in China indicate regional outbreaks.
• Figure 19: Mobility indicators in Shanghai show a return to normalcy.

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months.
• HOLD: Potential return of +15% to -10% over next 12 months.
• SELL: Potential loss of over 10% over next 12 months.
• NOT RATED: Not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

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• The analyst has not traded in the stocks covered in the report within 30 days prior to the report's release and will not do so for 3 business days after.

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