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Economist at UOB Group Ho Woei Chen, CFA, assesses the latest set of data releases in the Chinese economy.

Key Quotes

“China’s economic data continued to moderate in May as the favourable base effect diminishes. The key data releases today also missed market’s forecasts, in particular retail sales and urban fixed asset investment which came in well-below the estimates. The only bright spot was the surveyed jobless rate which fell to a 2-year low at 5.0% in May from 5.1% in April.”

“Industrial production slowed to 8.8% y/y (Bloomberg est: 9.2%) from 9.8% y/y in April. Retail sales slowed more markedly to 12.4% y/y (Bloomberg est: 14.0%) in May from 17.7% y/y in April and urban fixed asset investment (FAI) eased to 15.4% YTD y/y (Bloomberg est: 17.0%) from 19.9% YTD y/y in the preceding month.”

“The pace of retail sales growth seen as an indicator of private consumption demand, has underperformed expectations in April-May, leading to concerns that the recovery in China’s economy is uneven and may be losing momentum faster than expected. Nonetheless, the improvement in the labour market provided hopes for a stronger upturn in private consumption in 2H21 as the global COVID-19 vaccination continued to gain traction, thus reducing the uncertainties ahead.”

“With private consumption continuing to lag, the PBOC is likely to refrain from broad-based monetary policy tightening even as it will gradually reduce credit growth and system liquidity to address financial risks build-up (increase in new loans this year to be kept at 2020’s CNY19.63 tn). With YTD new loans at CNY10.64 tn, this would imply a sharper slowdown in new loans growth for the rest of the year. This is likely to contribute to further moderation in economic growth.”

“We have forecast China’s GDP growth to moderate to 8.0% y/y in 2Q21 from 18.3% y/y in 1Q21 with full-year at 9.1%, as the favourable base effect continues to diminish.”