20230131-招银国际-China_Macro_Monitor_Still_in_the_early_stage_of_recovery_15页_1mb

China Macro Monitor Summary

Core Content

China's economy is currently in the early stage of recovery following the reopening after the pandemic. The recovery is expected to follow a diagonal upward W-shaped pattern, with initial gains in mobility-driven sectors followed by a slower rebound in housing, durable consumption, and business investment. The recovery is anticipated to be supported by improved consumer and business confidence, employment, and income over time.

The forecast for China's GDP growth is maintained at 5.1% for 2023 and 4.7% for 2024, with the primary risk being an upside scenario. The PBOC is expected to keep liquidity and credit policies accommodative unless housing sales or inflation show significant improvement. The central bank will likely continue easing measures to support manufacturing, service, private business, and SMEs.

Main Points

• Early Recovery Phase:

  • Driven by the restoration of mobility, with significant increases in passengers, tourists, and moviegoers during the CNY holiday.
  • Sectors such as transportation, catering, travel, accommodation, recreation, clothing, and personal care are expected to benefit from this mobility revival.
  • GDP growth is projected to rise from 2.9% in 4Q22 to 3.2% in 1Q23 and 6.9% in 2Q23.
  • The recovery of these sectors is expected to contribute over 1.5 percentage points (ppt) to GDP growth in 2023.

• Delayed Recovery in Key Sectors:

  • Housing sales, large durable consumption, and business capital expenditures may take longer to recover due to lingering effects of the pandemic, weak income growth, and low confidence.
  • Housing sales and related durable consumption may bottom out in 1H23 and improve in 2H23.
  • Property development investment is expected to show less YoY decline in 2023 compared to 2022.

• Global Factors Impacting China:

  • Overseas recession risk, particularly from the US, may exert downward pressure on China's exports, industrial output, and manufacturing investment.
  • The US yield curve inversion and falling inflation expectations signal potential recession risk, influencing global demand and China's export performance.

• Monetary Policy Outlook:

  • The PBOC will maintain accommodative liquidity and credit policies to support economic recovery.
  • Additional RRR cuts are anticipated to further ease liquidity.
  • Money market rates may rise mildly in 2023 due to increased liquidity demand, but the central bank is unlikely to tighten liquidity as China's GDP growth remains below potential.

Key Information

• Economic Recovery Pattern: W-shaped, with an initial rise in mobility-driven sectors, followed by a slower recovery in housing, durable consumption, and business investment.
• GDP Forecast:
  • 2023: 5.1%
  • 2024: 4.7%
• CNY Performance:
  • Domestic tourists increased by 23.1% YoY.
  • Domestic tourism revenue rose by 30% YoY.
  • Daily average railway passenger flow increased by 57% YoY.
  • Domestic air trips increased by 79.8% YoY.
• Consumer Behavior:
  • Per capita consumption expenditure of travelers fell compared to pre-pandemic levels.
  • Core CPI growth remained below 1% due to weak domestic demand and mild reflation.
• Housing Market:
  • Commodity building sales declined by 31.5% in Tier 1 cities and 41.7% in Tier 2 & 3 cities YoY in January 2023.
  • Second-hand house listing prices continued to decline.
  • New housing inventory remains high.
• Auto Sales:
  • Passenger vehicle sales volume dropped 20.5% YoY in the first half of January 2023.
• Construction Activity:
  • Construction activity weakened close to the CNY holiday.
  • Capacity operation rates for construction materials declined, but prices mildly picked up due to improved sentiment.
• Export Trends:
  • China's exports may have temporarily improved in January but are expected to further deteriorate.
  • South Korea's trade with China reflects similar trends, indicating potential global economic slowdown.
• Inflation Outlook:
  • Commodity inflation is expected to decline due to weak global demand and improved supply chains.
  • China's reflation pressure is moderate, with core CPI growth likely to remain low.
  • The 2Y T-bond rate and Moutai's wholesale price indicate a moderate resumption of business activities.
• Monetary Conditions:
  • M2 growth is expected to slow from 11.8% in 2022 to 11.3% in 2023.
  • New RMB loans and social financing are expected to gradually rebound.
  • The PBOC may further ease monetary policy in the coming years.

Pro-Business Shift

• China is expected to continue with a pro-business policy shift over the next two years to restore business confidence and growth momentum.
• Policies include dismantling the zero-Covid policy, supporting the property market, and improving relations with the US, EU, and Australia.
• The focus is on economic development and attracting capital, with GDP growth and capital inflows as key KPIs for local governments.

Conclusion

China's economy is in an early stage of recovery, driven by the resumption of mobility and consumer activities. However, the recovery is expected to be non-linear, with key sectors such as housing, durable consumption, and business investment taking longer to rebound. The PBOC will maintain accommodative policies unless there is a significant rebound in housing or inflation. Global economic conditions, particularly the US recession risk, may continue to impact China's exports and manufacturing sector. The pro-business shift is expected to continue to support economic recovery and business confidence in the coming years.