Daily Management Review

Business activity in China slumps to pre-pandemic levels


Business activity in China slumped to pre-pandemic levels, according to industrial output and retail sales figures. According to the country's National Bureau of Statistics, industrial output growth slowed to 9.8% year-on-year in April (14.1% month earlier, month-on-month growth also declined from 0.6% to 0.5%).

Capex grew by 10.9% in April (19.4% YoY in March), but month-on-month growth accelerated from 1.5% to 2.2%. Retail sales growth slowed down from 34.1% to 17.7%, with monthly statistics showing a sharp fall from 0.9% to 0.3% (0.7% on average for 2019). Price rises meanwhile continued to accelerate, with producer prices rising by an average of 6.8% in April compared with 4.4% in March and retail prices rising by 0.9% compared with 0.4% in March (annualised).

Recall that the main recession in the Chinese economy against the background of the pandemic occurred in the first quarter of last year - the country's GDP then decreased by 6.8%. Already in the second quarter, growth was positive (3.2%), in the fourth quarter it accelerated to 6.5%, in general for the year the Chinese economy grew by 2.3%, while most major economies recorded a fall. 

In contrast, growth in the first quarter of this year was a record 18.3% due to the low base effect. Capital Economics expects this effect to reverse in the second quarter, noting that while consumption will support a reduction in unemployment, current growth in capex is unlikely to remain the same - it is largely supported by government investment, but the amount of stimulus measures will be reduced. However, the same does not apply to the technology sector where capex rose by 30.8% YoY in April and semiconductor output increased by 29.7% - the biggest chip shortage was in the car industry (minus 3.5% YoY in April).

The day before the Chinese authorities also extended the period of duties abolition on imports of 79 categories of goods from the U.S., which prolongs the trade agreement between the two countries, but last year China did not increase purchases of American products under the plan, moreover, the trade surplus of the country in April increased again, amounting to $ 42.9 billion against $ 13.8 billion in March.

source: capitaleconomics.com