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Asia-Pacific

China: Is the Recovery Sustainable?

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In line with recent strong data release, China’s economy has rebounded with the stock markets responding as A-share rose 28.7% in Q1. With a framework trade deal with the US in sight and government stimulus efforts coming through, Citi analysts are more confident that the economy stabilized in Q1 and should further recover in Q2.

 

China's official manufacturing Purchasing Managers' Index (PMI) rose 1.3pp to 50.5 in March, much higher than consensus expectations of 49.6. It returned to the expansionary territory after contracting for three months indicates a broad-based recovery. Given the good news, Citi analysts project GDP growth to remain stable at 6.2% YoY in Q1.

 

Domestic resilience is supporting the Chinese economy as evidenced by the growth of fixed asset investment advancing by 0.2 ppt to 6.1%YoY in January-February. In particular, infrastructure investment growth improved by 0.5 ppt to 4.3% YoY. Citi also expects retail sales to rebound to 8.5% in March and Industrial Production growth to accelerate to 6.1%YoY in March.

 

 

Keep an Eye on Exports and Imports: China’s most recent trade data for February shows exports contracting 20.7%YoY, reversing the 9.1% growth in January with the decline much larger than the consensus forecast of a 5% drop. As a result, China’s exports in the first two months of the year combined, have fallen 4.7% year on year, a sharp downturn from an increase of 3.9% in 4Q 2018.

 

Imports also fell 5.2% in February, a steeper drop than January’s 1.5% fall, and more than the consensus forecast of a 0.6% decline. This saw combined imports for the first two months fall 3.1%, following a rise of 4.4% in 4Q. 

 

Leading indicators for China’s other major trading partners, especially the euro zone and Japan, also point to further weaknesses for China’s exports as their manufacturing PMIs fall into contractionary territory in February -- the first time both have been in that zone since early 2013.

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