Economic Charter: China under Scan

Although experts do not anticipate a sharp V-shaped recovery for Chinese economy, a gradual return to the single-digit growth rate is highly anticipated in the coming months. Some recent statistics revealed for April 2020 on China’s economic indicators appear to strengthen the prospects for the same.

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Loan Data Beat Expectations

As per the People’s Bank of China’s latest data, China’s banks extended USD 240 billion or 1.7 trillion yuan in new loans in April 2020 against market expectations of 1.4 trillion yuan. Although the figure was quite lower than March 2020 during which banks extended 2.8 trillion yuan in new loans, it was higher than 1.02 trillion yuan a year before.

Notably, the new bank lending declined less than expected relative to the last month due to the Central Bank’s efforts to ramp up the economy.

The data also demonstrated that Broad M2 money supply surged by 11.1 per cent from a year earlier in April 2020, beating the forecast of 10.2 per cent. The accelerated growth of money supply was a result of the Central Bank’s monetary policy easing measures to support the economy.

To aid the embittered economy, the Central Bank recently reduced its key rate (1-year medium term facility rate) to a record low level of 2.95 per cent, injecting about USD 14.2 billion of liquidity into the nation’s financial system.

Besides, the Central Bank also lowered the Standard Lending Facility rate by 30 basis points, which brought borrowing costs for loans to the following levels:

• Overnight loans: 3.05 per cent
• Seven-day loans: 3.2 per cent
• One-month loans: 3.55 per cent

The Central Bank’s robust monetary policy measures are likely to offer a tailwind to the nation’s economic recovery while adding liquidity to the coronavirus-hit financial market.

Exports Surge Surprisingly Despite Pandemic Hit

Another robust set of figures on China’s trade balance were declared last week, indicating an unexpected surge of 3.5 per cent in the nation’s exports in April 2020. The growth in exports was aided by robust shipments to South East Asia during the period and marked first positive growth since December 2019.

The trade surplus figure of USD 45.34 billion was substantially higher than the amount forecasted by the market experts that was around USD 6 billion during the month. Experts suggest that April exports may have advanced due to exporters compensating for shortfalls emerging from supply constraints in the March quarter.

Although exports observed a turnaround, the imports fell by 14.2 per cent year-on-year, against anticipation of about 11 per cent fall.

Manufacturing PMI Dodges Contraction

As per the recent figures revealed by the National Bureau of Statistics (NBS), China’s Purchasing Managers' Index (PMI) for manufacturing declined from 52 in March 2020 to 50.8 in April 2020. The fall in the PMI score was a result of discouraged consumer demand across the globe amidst the pandemic.

However, what’s worth noting is that the PMI dodged contraction during the month, staying above reading of 50, reflecting expansion. This was a result of a pickup in business activity post COVID-19 induced shutdowns which earlier took the economy to a standstill.

Although PMI for manufacturing declined, the PMI for non-manufacturing surpassed expectations, surging to 53.2 in April from 52.3 in March.

Inflation Surges to 3.3%

The NBS declared lately that China’s consumer price index grew 3.3 per cent year-on-year in April 2020. Although the inflation moderated from 4.3 per cent gain witnessed in March 2020, it remained above the level of 3 per cent last month.

The CPI eased in April due to falling food prices as the nation fast-tracks revival of economic activities after containing coronavirus pandemic. The rise in food prices has so far remained a major driver behind an increase in China’s CPI. However, the epidemic containment efforts in the country outweighed supply over demand, inducing price falls in April.

While CPI rose in April, producer-price index (PPI) fell deeper into the deflation during the month with factory prices falling at the sharpest rate in the last four years. As per the NBS, the PPI declined by 3.1 per cent from a year earlier in April relative to 1.5 per cent fall in March 2020.

This was the biggest year-on-year decline in the PPI, induced by the weakening of demand and softening of prices of commodities and other industrial products.

Undoubtedly, some signs of economic recovery are noticeable as China reopens its economy and tries to return to normalcy. However, the second wave of infections looming in the nation with its reopening may become a cause of concern. Will this second wave undermine the nation’s efforts to bring the economy back on track needs to be watched out for.

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