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Monday, May 17, 2021
An Assessment of China's Economy in April
ANBOUND

On May 17, China's National Bureau of Statistics (NBS) has released partial economic data for April, providing a glimpse into the direction of China's economy as it entered the second quarter.

In the first quarter of this year, China's GDP reached RMB 24.93 trillion (approximately USD 3.845 trillion), with a growth rate of 18.3% year-on-year in real terms under the low base effect. The first-quarter GDP was also 10.3% higher than the GDP in the first quarter of 2019, with a two-year average growth rate of more than 5%. In the first quarter, the value-added of the industrial enterprises above designated size grew by 24.5% year-on-year; the total retail sales of consumer goods reached RMB 10.5221 trillion, a year-on-year increase of 33.9%; fixed asset investment (excluding rural households) totaled RMB 9.5994 trillion, up 25.6% year-on-year; merchandise imports and exports amounted to RMB 8.4687 trillion, up 29.2% year-on-year. The economic performance in the first quarter can serve as a reference for the economic performance in April.

The NBS has not announced economic growth in April, so how did China's economy fare in April in terms of monthly data? Researchers at ANBOUND would like to point out that a common feature of the April economic data is that economic indicators are starting to get rid of a low base effect, with economic growth starting to slow markedly from the previous three months. A sign of the effectiveness of China's fight against the COVID-19 pandemic was the lifting of the lockdown in Wuhan on April 8 last year. As a result, the national economy recovered rapidly from April onwards, leading to a significant reduction in the base effect in April this year.

In terms of industrial growth, in April, the value-added of the industrial enterprises above designated size grew by 9.8% year-on-year, or 0.52% month-on-month; the two-year average growth rate was 6.8%, 0.6 percentage points higher than that in March. In the first four months of this year, the value-added of the industrial enterprises above designated size increased by 20.3% year-on-year, representing a two-year average growth of 7.0%. In April, China's manufacturing PMI stood at 51.1, above the critical point for 14 consecutive months. The index for future expectation of production and business activities was 58.3%. Although the industrial sector is still growing rapidly, its growth rate has slowed to single digits. It can be seen that in April, the industrial growth began to gradually move away from low base effect.

As for consumption, the total retail sales of consumer goods reached RMB 3.3153 trillion in April, up 17.7% year-on-year or 0.32% month-on-month; it was 8.8% higher than that in April 2019, with an average growth rate of 4.3% in two years. After deducting price factors, the total retail sales of consumer goods in April 2021 increased by 15.8% in real terms, with an average growth of 2.6% in two years. From January to April, the total retail sales of consumer goods reached RMB 13.8373 trillion, a year-on-year increase of 29.6%, with an average growth rate of 4.2% in two years. Among them, the total retail sales of consumer goods excluding automobiles reached RMB 12.4063 trillion, up 27.7%. From January to April, China's online retail sales reached RMB 3.7638 trillion, a year-on-year growth of 27.6% and an average growth of 13.9% in two years. In addition, online retail sales accounting for 22.2% of the total retail sales of consumer goods. It is important to note that the recovery in consumption is still not sufficiently robust, with the two-year average growth rate significantly lower than the level of consumption growth in 2019. The difficult recovery in consumption shows that the pandemic and economic transformation have had a great impact on consumption, and that the impact is still present today.

Figure: Monthly growth rate of total retail sales of consumer goods

Source: China's National Bureau of Statistics

When it comes to investment, from January to April, China's fixed asset investment (excluding rural households) was RMB 14.3804 trillion, up 19.9% year-on-year; it was 8.0% higher than that from January to April in 2019, with an average growth of 3.9% in two years. On a month-on-month basis, investment in fixed assets (excluding rural households) increased by 1.49% in April. By industry, infrastructure investment grew 18.4% year-on-year in the first four months of this year, representing a two-year average growth of 2.4%; manufacturing investment increased by 23.8% year-on-year, with an average decline of 0.4% in the two years; investment in real estate development increased by 21.6% year-on-year, with a two-year average growth of 8.4%. In addition, private investment grew 21.0% year-on-year, with a two-year average growth of 2.9%; investment in high-tech industries grew 28.8% year-on-year, with a two-year average growth of 11.8%. Among high-tech manufacturing industries, investment in medical equipment and instrument manufacturing and pharmaceutical manufacturing increased by 40.3% and 33.1% year-on-year, respectively, with an average growth of 13.4% and 13.8% in two years. On a month-on-month basis, investment in fixed assets (excluding rural households) rose 1.49% in April. From the investment data, we can see that the investment in April still maintained month-on-month growth; compared with other industries, the growth rate of real estate investment is still considerable, showing that the real estate industry is developing tenaciously under the adjustment policy.

Figure: Growth rate of investment in fixed assets (excluding rural households)

Source: China's National Bureau of Statistics

In terms of foreign trade, as the global pandemic situation improved and the economic recovery picked up, the foreign trade performance in April was relatively impressive, with the total merchandise imports and exports amounted to RMB 3.1492 trillion, up 26.6% year-on-year. Among them, exports grew 22.2% to RMB 1.7128 trillion, imports grew 32.2% to RMB 1.4363 trillion, and the trade surplus reached RMB 276.5 billion. From January to April, China's merchandise imports and exports totaled RMB 11.6237 trillion, up 28.5% year-on-year. Among them, exports totaled RMB 6.3255 trillion, up 33.8% year-on-year; imports totaled RMB 5.2982 trillion, up 22.7% year-on-year.

In regard to price changes, domestic inflation has attracted much attention as global concerns about inflation increase. The consumer price index (CPI) rose 0.9% year-on-year in April, 0.5 percentage points higher than that in March. On a month-on-month basis, the CPI down 0.3% in April. It is worth noting that the prices of pork and fresh vegetables declined by 21.4% and 1.3% respectively in April, while the prices of grain and fresh fruit rose by 1.1% and 2.7% respectively. The core CPI, which excludes food and energy prices, rose 0.7%, up 0.4 percentage points from March. In the first four months of this year, China's CPI rose 0.2% year-on-year. In addition, the producer price index (PPI) rose 6.8% year-on-year in April, 2.4 percentage points higher than that in March. On a month-on-month basis, the PPI rose0.9% in April. By industry, the PPI of oil and gas extraction industry, ferrous metal mining and processing industry, ferrous metal smelting and rolling industry, and non-ferrous metal smelting and rolling industry rose by 85.8%, 38.3%, 30.0%, and 26.9% respectively. In the first four months of this year, the ex-factory prices of industrial producers and purchasing prices of industrial producers rose by 3.3% and 4.3%, respectively.

Final analysis conclusion:

Overall, China's economic indicators in April have maintained a steady growth. That said, as the base effect wanes, the growth rate of domestic economic data will continue to fall. Notably, the recovery of consumption, which plays a significant role in the Chinese economy, remains weak, suggesting that the economic recovery in China is not on a firm footing.

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