China Q2 and H1 Overview

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On Thursday, the Chinese government published the highly anticipated economic data for the second quarter of 2020. Following the first quarterly decrease of GDP in Q1 since the opening-up of the Chinese economy in 1978, the Q2 numbers should divulge whether China has been able to recover or potentially move back into expansionary territory.

Although the outbreak appears to be under control in China, the rest of the world is currently still battling COVID-19 and experiencing its economic consequences. Remarkably, the Chinese economy overall shows signs of expansion, and may currently be the only economy in the world capable of such a feat in this stage of the crisis.  Below we highlight the most important takeaways of the economic data which has just been released.

After strong contraction in Q1, GDP increased again in Q2

The y-o-y change in GDP in the second quarter was an increase of 3.2%. This is certainly an improvement compared to the strong contraction of Q1 at -6.8%. On a quarter-to-quarter basis the GDP even increased by 11.5%. The aggregate GDP change for the first half of 2020 was a contraction of -1.6% at comparable prices. Over the first half year the value added of the primary industry grew by 0.9% y-o-y, whereas the added value of the secondary industry decreased by 1.9% and that of the tertiary industry by 1.6% y-o-y.

Imports and exports much better than expected

In Q2, the total value of imports and exports of goods declined by 0.2% y-o-y, a strong improvement compared to the drop of 6.5% in Q1. In the first half of the year, the total value of exports decreased by 3.0% and the total value of imports decreased by 3.3%. Despite the trade tensions and the ongoing struggle of the rest of the world with COVID-19, trade numbers improved significantly in June where the total value of exports increased by 4.3% y-o-y and the total value of imports increased by 6.2% y-o-y.

Employment stabilizes in second quarter

The surveyed unemployment rate in urban areas decreased to 5.7% in June, after rising sharply to 6.2% in February. The newly employed in urban areas in the first half year totalled 5.64 million people, 62.7% of target set by the government for new employment in 2020. However, it must be noted that it is unclear how employment for migrant workers has developed, as migrant workers are largely unregistered.

Purchasing Managers’ Index (PMI) remained in expansionary territory during Q2

The composite PMI output index for large enterprises is a weighted summation of the manufacturing output index and non-manufacturing business activity index. If the PMI index is 50 this indicates no change, whereas a number over 50 indicates improvement and a number below 50 suggests a decline.

After the Composite PMI for large enterprises reached 53.0 in March, it reached slightly higher levels in April (53.4), May (53.4) and June (54.2). However, this was mainly led by the non-manufacturing PMI. Although the composite PMI for SMEs increased from 46.7 in March to 47.6 in April, it only improved beyond the 50 threshold for May when it reached 54.5 and improved further in June to 55.7. The numbers for both large enterprises and SMEs suggests that the Chinese economy is growing again, although it still has to make up for the large contraction in Q1.

Retail sales are improving, but still no growth y-o-y despite continued strong online retail sales

After the strong contraction of retail sales in Q1 at 19.0% y-o-y, retail sales are improving, but still have a long way to go. For the first half of the year retail sales in aggregate contract by 11.4% y-o-y. Although demand seems to be picking up slowly, with smaller y-o-y decreases in April (-7.5%), May (-2.8%) and June (-1.8%), the sales levels are still far from recovered. However, among all the gloomy numbers, online retail sales stand out in positive way, with a first half of the year growth of 14.3% y-o-y.

Industrial production recovered quickly and is already showing growth

The value added of industrial enterprises, also known as industrial growth rate, declined by 8.4% in Q1, but moved into expansionary territory starting from April. Due to growth in April (3.9%), May (4.4%) and June (4.8%) the value added increased by 4.4% y-o-y in Q2. In the first half of 2020, the total value added of industrial enterprises declined by 1.3% y-o-y, but the Q2 numbers are showing a promising recovery.