August China & Asian Market Insight: China’s recovery continues but household remains sluggish

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 imbalance in China’s economy recovery and the policy direction of Beijing in the second half of the year.

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.

The July economy data showed the recovery in the Chinese economy has continued as we moved into the 2nd half of the year.

Export remains a bright spot, with shipments of medical and electronic products continued to be supported by the ongoing pandemic globally. However, exports of consumer-related products, such as furniture and toys, have also picked up noticeably, suggesting a genuine recovery in external demand.

Domestically, the investment engine of the economy continued to function well. Even though that infrastructure investment growth tapered off slightly in July, the overall construction activity remained very solid, and should be further supported by strong project pipeline and abundant financing.

The housing market has also gone from strength to strength, with house sales, starts and investment growth all accelerating than the previous month.

The laggard in the whole recovery process, however, remains the household sector. Retail sales growth contracted for the 7th consecutive month, despite a sharp rebound in auto sales. Even though that July data might have been distorted by some temporary factors, such as the southern China floods, we think the slow recovery in consumption is deep-rooted in the lackluster labor market and slow wage growth that continue to hinder consumer confidence.

Overall though, the economic recovery in China has continued apace, although not all cylinders in the engine are firing to their fullest strength. Given the elevated external tensions, Beijing has vowed to redirect attention back to domestic development, where we think fostering the current recovery and make it more sustainable and balanced could be a near-term priority. That’d probably require a further policy fine-tuning and operations that aims to further nurture the recovery and growth in 2nd half of this year.

Thank you very much and stay safe.