MNI: China Seen Growing At Least 6% In H2; Spending To Recover

China may grow at least 6% in the second half of this year bringing annual growth to above 8% as consumption recovers to pre-pandemic levels with rising vaccination rates and as real-estate investment stays resilient, Beijing policy advisors told MNI.

Although high commodity prices and Beijing's attempts to control debt may reduce some growth momentum, they will be offset by greater demand for Chinese products as the western recovery gathers pace, they said. However, growth may drop below 6% next year as the comparison with Covid-affected 2020 no longer figures in calculations and as global demand softens.

While factory output and fixed asset investment showed momentum in April, the sequential slowdown in retail sales despite a three-day Qingming Festival holiday and robust domestic tourism raised some concerns that the recovery has failed to broaden to household spending.

Retail sales grew just 0.32% m/m in April, slower than March's 1.75%. The main drag came from slowing demand for cars, which account for about 30% of overall retail sales, according to Liu Xiangdong, deputy director of Economic Research at the China Center for International Economic Exchanges.

APRIL AN OUTLIER

Previous stimulus for car purchases has exhausted most of the demand while the low-carbon push has hit sales of gas guzzlers, he said. Nevertheless, Liu expects retail sales to rebound to about 8% by year-end, the same level as in 2019. Consumer confidence will improve with better vaccination, and there will be policy measures to boost domestic travelling and expand imports of foreign items to make up for the lack of international travel, he said.

The slowdown in consumption in April may be an outlier for the year, said Wang Jun, chief economist with Zhongyuan Bank. Based on his observation of high frequency data, Wang expects May, when China had a five-day holiday, to be an improvement on April. The higher vaccination rate will also help offline businesses weather the impact of any localised virus outbreaks, he said. Wang forecasts Q2 GDP growth around 8% y/y.

Views on real-estate investment are mixed. Leading indicators have dropped so growth could slow in the second half, said Ming Ming, deputy director of CITIC Securities and a former staffer at the People's Bank of China. Liu, however, maintains that the restrictions on the real estate sector are mainly aimed at first-tier and major cities where home prices have increased rapidly and that developers will gravitate to nearby towns, which are urbanising, sustaining momentum.

ROBUST EXPORTS

Liu expects infrastructure investment will continue to pick up with sufficient funding support for ongoing projects, albeit at a slow pace as the government controls debt and forecasts investment growth will reach pre-pandemic levels with at least double-digit year-on-year growth by year end.

Referring to exports, Wang said demand for Chinese products would remain strong as western countries emerge from the pandemic. "Many competitors are yet to resume normal production," he said, adding that the proportion of Chinese exports in the global market will stay relatively unchanged. According to latest official figures, China accounted for 14.7% of total global exports in 2020, the highest for the country.

Although rising commodity prices have raised concerns about the profitability of down-stream manufacturers, Ming believes that if China's supplies hold up, it will benefit exports. Developed economies may see yet another phase in the recovery "so we are long on China's exports in Q2 and Q3," Ming said.