毕马威-中国经济观察：2022第三季度（英）

0

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China

Economic

Monitor

Issue:2022Q3

August2022

/cn

Keytakeaways

•China’sGDPgrew0.4%year-over-year(yoy)inQ2.Itwasthesecondlowestpacesincethequarterlydatastartedin1992,andwasonlyhigherthan2020Q1whentheCOVID-19pandemicstarted(-6.9%).Onaquarter-to-quarterbasis,theeconomycontractedby2.6%,reflectingthesignificantimpactoftherecentoutbreakontheeconomy.

•Tostimulategrowth,China’sStateCouncilreleasedasetof33supportivemeasuresattheendofMay,suchasimplementingadditionaltaxcuts,acceleratingtheissuanceoflocalgovernmentspecialbonds(LGSBs)andinfrastructureinvestment,increasinginclusiveloanstoSMEs,expeditingproductionresumption,andreducingthepurchasetaxforsomeautos.

•Withtherecentoutbreakgraduallyundercontrolandtheintroductionofadditionalpolicysupport,economicactivityshowedbroad-basedimprovementinJunefromtheApriltrough.Industrialproductionimprovedfrom0.7%inMayto3.9%inJune.However,manufacturingPMIfellintothecontractionaryzoneagaininJuly,suggestingtherecoveryisstillfragile.

•Domesticconsumptionremainedanaemicwithretailsalesfalling4.6%inQ2—thelargestdeclinesinceearly2020.Theweakconsumptioniscausedbybothmovementrestrictionsduetothepandemicandlowconsumerconfidence.TheoveralllabourmarketimprovedinJunebuttheunemploymentrateforthe16–24agesubgrouproseto19.3%—thehighestlevelinthedata’shistory.Witharecord10millionstudentsexpectedtograduatethisyear,thestabilityofthelabourmarketwillremainatoppriorityforthegovernment.

•Exportgrowthbeatexpectationandremainsakeydrivertoeconomicgrowth.Growthofinfrastructureinvestmentisacceleratingbutmanufacturinginvestmenthasstartedtoretreatfromahighlevel.

•Thehousingmarketfacescontinuedpressurewithfallingpropertystartsandsales.Manylocalgovernmentshaverelaxedregionalrealestatepoliciestosupportthemarket.Inaddition,China’scentralbankslashedthefive-yearloanprimerate(LPR),thebenchmarkrateformortgageloans,by15bpsinMay.Ithasbeenreportedthathomebuyersofsomepre-soldhousingprojectsarethreateningtostopmortgagepaymentsduetostalledconstructionbydevelopers.Eventhoughtheoverallrisktothefinancialsystemisstillmanageable,butcertainareasorbanksmayhavehigherexposuresandthesituationshouldbemonitored.

•Intheclosely-watchedJulyPolitburomeeting,thefull-yeareconomicgrowthtarget(5.5%)setattheTwoSessionsinMarchwasnotexplicitlyrejected,butwasnotmentioned.Thecurrentgoalisto‘keepstableemploymentandinflation,ensureeconomicgrowthwithinareasonablerange,andstriveforthebestresult’.Meanwhile,themeetingalsoencouragedlargeeconomicprovincesshouldtaketheleadinsupportinggrowthandthoseplaceswithgoodconditionsshouldstilltrytoachievethefullyeartarget.WeexpectChina’sGDPtogrow5.5%inthesecondhalfoftheyearand4.1%forthefullyearof2022.

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1

TheOmicronvariantcausedhighlevelsofnewinflectionsinChina

duringMarch–May,buthassinceeased

COVID-19dailycasesinmainlandChina

RecentOmicronwaveinChina:

12March–22May2022

30,000

25,000

20,000

15,000

10,000

5,000

0

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

202020212022

MainlandChina(confirmedandasymptomaticcases)Globalexcl.China(rightaxis)

Source:Wind,KPMGanalysis.DatathroughAugust72022.

•WiththeOmicronvariantstartingtospreadaroundtheworldsincelastNovember,globaldailynewinfectionsbrokeprevioushighsandreachedover3.3millioninJanuary2022.GlobalinfectionshaveretreatedinApril–Maybutappeartobepickingupagaininrecentweeks.

•InthethreemonthsofMarch–May,Chinarecorded774thousandnewcases—seventimesmorethanthetotalnumberofcasesinthepasttwoyearscombined.However,theoutbreakhasbeenputundercontrol,anddailynewinfections

havedroppedbelow1,000sincelateMay.

2

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70605040302010

0

40%35%30%25%20%15%10%5%

0%

35.6%

15.0%

9.9%

AprilMayJune

ShareofGDP

affected

TherecentoutbreakhadasignificantimpactontheeconomyinQ2

Citiescontainingoneormoremedium-orhigh-riskareasinmainlandChina

63

28.9%

11.4%

21

5.5%

9

35%

30%

25%

20%

15%

10%

5%

0%

AprilMayJune

Shareofpopulationaffected

AprilMayJune

Numberofcities

Source:Wind,KPMGanalysis.DatathroughJune302022.

•EventhoughnewinfectionsinChinaarestilllowcomparedwiththeglobalstandard,theOmicronoutbreakhadasignificantimpactontheeconomy.Therewere63citiescontainingoneormoremedium-orhigh-riskareasinApril,representingabout28.9%ofChina’spopulationor35.6%ofGDP.

•AsinfectionshaveretreatedsincelateMay,quarantinemeasureshavebeengraduallylifted.Thenumberofcitieswithriskareasdroppedto9inJune,accountingfor5.5%ofthepopulationor9.9%ofGDP.Asaresult,economicactivityshowedbroad-basedimprovementfromtheApriltrough.

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3

Q12020–21Average

4.9%

Q22020–21Average

5.5%

Q32020–21Average

4.8%

Q42020–21Average

5.2%

2017–19Average

Q12022

GDP

6.6%

4.8%

Industrial

production

6.2%

6.8%

6.6%

6.5%

5.3%

5.5%

Retailsales9.0%4.1%4.6%3.0%4.1%3.3%

Fixedassetinvestment

2.7%

6.2%

5.6%

3.2%

3.7%

9.3%

Exports6.1%13.4%14.2%16.0%19.7%15.7%

Imports

12.0%

14.2%

14.1%

14.4%

10.2%

9.8%

Incomepercapita

4.5%

5.9%

4.9%

5.1%

5.1%

6.5%

Fiscalrevenue

-1.5%

4.6%

8.6%

3.2%

5.2%

5.8%

Fiscal

8.2%

0.1%

-1.5%

2.3%

5.5%

8.3%

expenditure

Source:Wind,KPMGanalysis.Note:growthofGDP,industrialproduction,andincomepercapitaareinrealterms,whiletherestisinnominalterms.

ThepaceofChina’seconomicrecoveryisstilluneven

Growthrateofmajoreconomicindicators,%

Q22022

0.4%

0.6%

-4.6%

4.2%

12.9%

1.7%

0.4%

-28.0%

37%

•China’sGDPgrew0.4%yoyinQ2.Itwasthesecondlowestgrowthpacesincethequarterlydatastartedin1992,andwasonlyhigherthan2020Q1whentheCOVID-19pandemicjuststarted(-6.9%).

•Exportsremainedasthekeydriveroftherecovery.Investmentsinmanufacturingandinfrastructurereboundedduetopolicysupports.Incontrast,retailsalescontracted4.6%inQ2duetotheOmicronoutbreak.

•Fiscalrevenuedeclinedto-28%yoyinQ2duetolargevalue-addedtaxrefunds.It

fell10.2%inthefirsthalfof2022,belowtheannualtargetgrowthrateof3.8%.

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4

60

40

20

0

-20

-40

-60

-80

IndustrialactivitiesreboundedfromtheApriltrough

Industrialproduction,yoy,%

2019-012019-072020-012020-072021-012021-072022-01

NationalShanghai

Source:Wind,KPMGanalysis.

•Shanghai,oneofChina’slargesteconomic

hubs,represented3.8%ofthenationalGDPin2021.Thecitysawamajorimpactfromtherecentoutbreak.Amidexpansivelockdownsandlogisticsdisruptions,Shanghai’sindustrialproductionplunged63%inApril,arecorddeclineforthecityandfarexceedingtheimpactseeninearly2020whenthepandemicjuststarted.

•Withthepandemicgraduallyputundercontrol,logisticshasimprovedandindustrialactivitieshasrebounded,especiallyinautoandmachinery.Nationalindustrialproductiongrew3.9%inJune,upfrom-2.9%inApril.Meanwhile,Shanghai’sindustrialoutputsurged13.9%inJune.

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5

Consumptionisstillweakbutshowsimprovementwithstrongauto

sales

Retailsales,yoy,%

100

80

60

40

20

0

-20

-40

-60

20152016201720182019202020212022

RetailsalesCateringservicesAutosales

Source:Wind,KPMGanalysis.

•GrowthofretailsalesreturnedtopositiveinJuneafterthreemonthsofcontraction.Itgrew3.1%,higherthanmarketexpectations.

•Autoaccountedforaround10%oftotalretailsales.AutosalesreboundedinJune,up13.9%,drivenbysupplychainimprovement,policysupportsthroughreducedpurchasetax,andlowerbaseforcomparison.

•Althoughhardhitbythevirusspread,cateringservicesreboundedinJune.TheservicesPMIjumpedto54.7%inJunefrom47.8%inMay,suggestingarecoveryin

servicesconsumptioninH2.

6

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25

19.3%

20

15

10

5

0

2018

2019

Overall

2020

Aged16-24

20212022

Aged25-59

Source:Wind,KPMGanalysis

Thetotalunemploymentratehasretreatedbutchallengesremain

fortheyoungercohort

Urbansurveyedunemploymentrate,%

•Theurbansurveyedunemploymentratedeclinedto5.5%inJunefrom6.1%inApril.Theunemploymentrateofpeopleaged25–59stoodat4.5%inJune,thelowestlevelsofarthisyear.

•However,theunemploymentrateofpeopleaged16–24isstillhighandroseto19.3%inJune,thehighestlevelinthedata’shistory.Arecordlevelof10millionstudentsareexpectedtograduatethisyearandhencelabourmarketstabilitywillremainatoppriorityforthegovernment.

7

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Householdsentimentforconsumptionisstillweak

Shareofsurveyedhouseholdswhoindicatethattheywilleitherincreasesavings,consumptionorinvestment

70

60

50

40

30

20

10

0

2019

2020

2021

2022

20172018

Moreconsumption

Moreinvestment

Moresavings

Source:ThePBoC,KPMGanalysis

•AccordingtoasurveybythePeople’sBankofChina(PBoC),householdsentimentforincomegrowthdeterioratedto44.5inQ2,thesecondlowestinhistory.Asaresult,householdsarestillcautiousaboutconsumptionandinvestment.Theshareofsurveyedhouseholdsthatareplanningtoincreaseinvestmentdeclinedtoarecordlowof17.9%,whiletheshareofthoseplanningtoincreasesavingsreached58.3%,thehighestlevelonrecord.

•WeexpectincomesentimenttoimproveinH2andsupportagradualrecoveryofconsumption.

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8

Localgovernmentshaveacceleratedtheissuanceofspecialbonds

tosupportinfrastructureinvestment

IssuanceofLGSBs,yeartodate,RMBbillion

4,000

3.41trillion

3,500

3,000

2,500

2,000

1,500

1,000

500

0

JanFebMarAprMayJunJulAugSepOctNovDec

2019202020212022

Source:Wind,KPMGanalysis

•Thegovernmentacceleratedtheissuanceoflocalgovernmentspecialbonds(LGSBs),amajorfundingsourceforinfrastructureinvestment.InH1,thegovernmentissuedatotalofRMB3.41trillionLGSBs,93.4%oftheannualquota.InJunealone,itissuedRMB1.37trillionLGSBs,thehighestlevelinhistory.Thepaceofissuancewasmuchfasterthanthepreviousyears.

•Asabout65%ofLGSBsaretargetedatinfrastructureprojects,afasterissuanceprovidesbetterfundingforconstruction.Infrastructureinvestmentroseby8.6%inQ2and9.3%inH1.

•Infrastructureprojectssuchaswaterconservancy,transportationandurbanrenovationhavebeenaccelerated.Weexpectinfrastructureinvestmenttoremainstronginthesecondhalfofthisyear.

9

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25%

20%

15%

10%

5%

0%

-5%

-10%

-15%

-20%

•Duetoalargerefundofvalue-addedtaxes(totalledRMB2trillionasofmid-July),fiscalrevenuedeclined10.2%inthefirsthalfof2022,farbelowitsannualtargetof3.8%.

•Thegovernment-managedfunddeclinedby28%inH1,mainlyduetothesharpdropinlandsales.Thelandrevenueforlocalgovernmentsdeterioratedto-31.4%inH1.

•Fiscalrevenueandgovernment-managedfundarethetwomajorincomesourcesforthegovernment.Thecombinedrevenuedropped14.7%inthefirsthalfof2022.Weakgovernmentrevenuemaylimittheroomofadditionalfiscalsupportsbylocalgovernments.

Governmentrevenuedroppedduetotaxrefundsandfallingland

sales

GovernmentrevenueinH1ofeachyear,RMBbillion

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

3,124

10,433

-2.6%

3,178

10,785

3.0%

3,148

9,618

-8.6%

22.4%

3,908

2,797

11,712

10,522

-14.7%

20182019202020212022

FiscalrevenueGovernment-managedfundgrowthrate(yoy,%,rightaxis)

Source:Wind,KPMGanalysis

10

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60

40

20

0

-20

-40

-60

Thehousingmarketfacescontinuedpressurewithfallingproperty

startsandsales

Growthofpropertystartsandnewhomesales,yoy,three-monthmovingaverage,%

20122013201420152016201720182019202020212022

PropertysalesPropertystarts

Source:Wind,KPMGanalysis

•China’srealestatemarkethasbeenfacingsignificantpressuresincethesecondhalfof2021.Housingstartsandnewhomesaleshavebothcontinuedtodecline.Realestateinvestmentfellby5.4%inH1fromayearago.

•Liquiditypressurehasbeenakeychallengefacedbydevelopers,especiallyforsomeprivate-ownedenterprises.

11

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Localgovernmentshavechangeddirectionandareannouncing

easingmeasurestosupportthepropertymarket

Numberofnewrealestatepoliciesreleasedbylocalgovernments

160

140

120

100

80

60

40

20

0

EasingNeutralTightening

Source:CRICChina,KPMGanalysis

•Tocushiontheslowdown,morelocalgovernmentsareannouncingeasingpoliciesonthepropertymarket,suchasrelaxingrestrictionsonpropertypurchases,cuttingmortgageratesandloweringdown-paymentratios.

•Localgovernmentsreleased121easingpoliciesinMayand117inJune,asharpreversalfromthesecondhalfof2021whenmostofthepoliciesannouncedweretightening.

12

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8.07.57.06.56.05.55.04.54.03.5

3.0

Themortgagerateforhomebuyershasbeenlowered

Nationalaverageofmortgagerateforhomebuyers,%

201420152016201720182019202020212022

First-homebuyersSecond-homebuyers

Source:Wind,KPMGanalysis

•China’scentralbankhascutmortgageratesforhomebuyers.Itslashedthefive-yearLPR,thebenchmarkrateformortgageloans,by15bpsinMay.Thiswasthelargestreductionsincethenewinterestratemechanismcameintoeffectin2019.

•Italsoloweredtheminimummortgagerateforfirst-timehomebuyersby20bpson15May.Asaresult,theminimumrateforfirst-homemortgageshasbeenloweredby35bps(from4.60%to4.25%)insomecities.

•Therealestatemarketcontributesto15–20%ofChina’seconomyandiscriticalforeconomicgrowth.Theoverallregulatorytoneof‘housingisforliving,notforspeculation’willlikelyremainunchanged,butweexpectmoreeasingpoliciestobe

adoptedtosupportstabilityofthemarket.

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13

14

Overallriskofrecentmortgageboycottsduetostalledconstruction

isstillmanageablebutshouldbecloselywatched

Mortgageloananditsshareintotalbankloans

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

20122013201420152016201720182019202020212022

Mortgageloans(RMBbillion)Shareoftotalbankloans(%,rightaxis)

Source:Wind,KPMGanalysis

*E-houseestimate

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25%

20%

15%

10%

5%

0%

•Therehavebeennewsreportsthathomebuyersofsomepre-soldhousingprojectsarethreateningtostopmortgagepaymentsifdevelopersdonotresumeconstruction.

•CurrentmortgageloanstotalledRMB39trillion,about20%oftotalbankloans.TheamountofmortgageloansforwhichhomebuyersmaystoppaymentsisestimatedataroundRMB1trillioninmid-July*,about2.5%oftheoutstandingmortgageloansor0.5%oftotalbankloans.

•Eventhoughtheoverallrisktothebankingsystemisstillmanageable,somecitiesanddevelopersmayhaveahigherexposureandthecontagiousriskshouldbemonitored.Thegovernmentistakingactionstoaddresstheissue.Forexample,ChinaBankingandInsuranceRegulatoryCommission(CBIRC)hasaskedbankstoprovidecredittoeligibledevelopersso

thattheycancompleteconstruction.Somelocalgovernmentsaresettinguprelieffundstohelpdeveloperswithliquidityissues.

Exportsbeatexpectation,butaslowerglobaleconomyand

geopoliticaluncertaintycloudfuturegrowth

Growthofexportsandimports,yoy,3mma,%

100

80

60

40

20

0

-20

-40

-60

-80

20142015

201820192020

Imports

20212022

20162017

Exports

Source:Wind,KPMGanalysis

•Drivenbycontinuedexternaldemand,exportshaveremainedstrong.Exportgrowthreboundedfrom3.7%inAprilto17.9%inJune,beatingmarketexpectations.

•Incontrast,importgrowthinJuneslowedto1.0%from4.0%inMay,weigheddownbylogisticdisruptionsandsubdueddomesticconsumption.

15

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31.8%

Machineryandelectricalproducts,basemetalandchemicalswere

themaindriversfortherobustexportgrowthinQ2

ContributiontoChina’sQ2exportgrowthbyproduct,%

Machinery/ElectricalBasemetal

ChemicalsTextilesPlastics

Footwear

Foodbeverage

Leather

PaperproductsCeramicproducts TransportationMineralproducts

Source:Wind,KPMGanalysis

19.4%

10.9%

10.7%

6.0%

5.5%

3.3%

2.8%

2.6%

2.2%

1.8%

1.2%

0%5%10%15%20%25%30%35%

•Q2’srobustexportgrowthwasmainlydrivenbymachineryandelectricalproducts.Exportofnewenergyproductssuchassolarcellsandlithium-ionbatteriessawparticularlystrongincrease.

•Exportsofbasemetal,suchassteelandcopper,andchemicalsalsogrewrapidly,drivenbytherecoveryofoverseasproductionandasurgeincommodityprices.

•China’sexportstructureisalsoseeingfurtherimprovement.High-techexportsrecordedrapidgrowthinJune,especiallyinlifesciencetechnologyandchips.

16

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10

8

6

4

2

0

-2

2010201120122013201420152016201720182019202020212022

ChinaUSEU

Source:Wind,KPMGanalysis

InflationhasremainedrelativelylowinChinacomparedwithother

marketsbutmaypickupinH2

Consumerpriceinflation,yoy,three-monthmovingaverage,%

•Inflationhasbeenatopconcerntomanyeconomies.Forexample,USconsumerpriceinflationhitrecordhighsofthepastfourdecades.Risinginflationisattributabletomanyfactorssuchaslargestimulusmeasuresintroducedduringthepandemic,price-wagespirals,supplychaindisruptions,andgeopoliticaltensions.

•Incontrast,inflationhasremainedrelativelylowinChina,givingtheChinesegovernmentsomeroominitsmonetarypolicy.Chinaistheonlymajoreconomyintheworldthatisstilladoptinganeasingpolicystancetosupportgrowth.

•China’sinflationarypressureislikelytograduallypickupinH2,duetorisingfoodpricesandaconsumptionrecovery.

17

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60

50

40

30

20

10

0

Porkprice,animportantcontributortotheCPIfluctuations,isfacing

upwardpressure

Porkpricesandbreedingsowstock

2014201520162017201820192020202120222023

Averagewholesaleporkprices(RMB/perkg)

Stockofbreedingsow(9monthsinadvance,rightaxis,inreverseorder)

Source:Wind,KPMGanalysis

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

•Foodaccountsfornearly30%ofChina’sconsumerpricecalculation,andporkpricesareanimportantcontributortotheCPIfluctuations.

•FallingporkpriceshadbeenakeyreasonforthelowinflationinChinaforthepastoneandhalfyears,butporkpriceshavebeenrisingrecently.Theaveragewholesaleporkpricesgrew31%inJulyfromayearagoandwereupnearly60%fromtheMarchlows.

•Thestockofbreedingsowstendstobealeadingindictorofporkprices.Slowergrowthofbreedingsowsmayputupward

pressureonfutureporkprices.

•Tomitigatethepriceincrease,thegovernmentisconsideringtoreleasestatereservesofporktoincreasesupply.

18

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25

20

15

10

5

0

-5

Bankloansandgovernmentbondsarethemajorsourcesofgrowth

intotalsocialfinancing(TSF)

NewTSFbysector,RMBtrillion

2020Jan-June

2021Jan-June

2022Jan-June

Source:Wind,KPMGanalysis