July China & Asian Market Insight: China: V-shaped recovery confirmed

AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.

In this month’s video he talks about the V-shaped recovery of Chinese economy confirmed in Q2 and potential policy easing measures for the rest of 2020.

Please find the full script below:

Hello, welcome to our monthly video series. My name is Aidan Yao. I’m the senior emerging Asia economist here at AXA Investment Managers.

A better than expected Q2 GDP print showed that the Chinese economy has rebounded from the rock-bottom, leading the rest of the world out of the ravages of COVID-19.

Quarter-on-Quarter growth expanded by 11.5% in the second quarter, after a 10% contraction in Q1, making it a closest assemblance to a V-shaped rebound, which few thought was possible just a few months ago.

Underneath the solid headline print, however, lies an uneven recovery across the different sectors of the Chinese economy.

In general terms, supply has outpaced demand. Investment has outgrown consumption. While industrial sectors have fared better than tertiary sectors.

Part of this uneven growth is a result of policy easing, which has so far focused on assisting work resumption, spurring infrastructure investment and lowering funding costs which have unintentionally benefited the property market.

In contrast, the household sector has not really been a big beneficiary of the stimulus so far. And that’s why, labour market conditions and wage growth have been relatively slow to recover, holding back consumer spending.

We think the uneven and still fairly fragile recovery is likely to continue. That, coupled with risks of further potential virus outbreaks, as well as recent severe floods in Southern china, will likely keep the foot of the policy makers on the gas paddle for the remaining of this year.

That being said, the recent strong rally in equity and property markets may complicate policy operation somewhat. We think a slower pace, but more targeted implementation of the stimulus is more than likely over the second half. 

That should be sufficient to bring GDP growth on year-on-year basis to 5-6% in Q3 and Q4, with full year growth landing at 2.3% for the whole of 2020.

Thank you very much and stay safe.