September China & Asian Market Insight: China’s recovery gains more balance and steam

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 messages sent by China’s economic data of August.

Please find the full script below:

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

China’s economic recovery has gained further strength and breath, after its V-shaped rebound in the second quarter.

The latest economic data for August revealed two key messages:

First, the recovery has gained further steam. This is partly reflected in industrial production growth returning back to the pre-COVID level of 5.6%, much faster than we and the market had anticipated.

Traditional growth engines of the economy have continued to power ahead, with exports and property investment both beating market expectations. While growth in infrastructure investment has moderated somewhat last month, we think future growth is well supported by a solid project pipeline and abundant financing.

The second message was that the recovery has become more balanced and broad-based. This was particularly reflected in a revival of private consumption and investment in August, both recording their first year-on-year growth in 2020.

The catch-up of the private-sector economy is particularly encouraging and an indication that China’s recovery has broadened in scope and gained in self-sustainability.

We think the latest economic development has two implications. First, Beijing will likely take the better-than-expected data as validation to further fine-tune monetary policy back to neutral, while relying on fiscal policy to continue to safe-guard the economy back to its pre-COVID growth trajectory. This means reduced chance for aggressive monetary easing, such as RRR or interest rate cuts over the remainder of this year.

Secondly, we now see the balance of risks to our 2020 growth forecast of 2.3% tilt moderately to the upside, if the August growth momentum continues going forward.

Thank you and stay safe!