Asia/Pacific June 15, 2022 / 04:31 am UTC

China May Activity Data Review: Temporary Recovery but Potential Weaknesses Remain

By Alex Ng

China’s May activity data showed broad recovery in the economy. However, with risk of repeated COVID lockdown and broad background of more state control towards private economy, any near-term relief is likely to be temporary.

Figure 1: China’s Activity Data

Source: CEIC, Continuum Economics

China’s May activity data came in stronger than consensus forecasts across the board. Retail sales decline narrowed from -11.1% y/y in April to -6.7% y/y in May, versus consensus forecast for a 7.1% fall. Industrial production reverted from a decline of -2.9% y/y in April to 0.7% y/y in May, beating consensus forecast of 0.9% y/y decline. Urban fixed asset investment growth also beat consensus forecast of 6.0% y/y YTD, coming in at 6.2% y/y YTD in January-May albeit decelerating from 6.8% y/y YTD in January-April.

The beats in retail sales and industrial production reflected the known factors of post-Covid lockdown reopening. Some COVID restrictions in Shanghai were eased during May, allowing factories to gradually resume production and logistic bottlenecks to ease. The recovery in industrial output was helped by a rebound in the car sector as auto production centers like Jilin and Shanghai reopened. 

While some argue that growth has bottomed and the recovery has just started, we believe the recovery will be incomplete and very bumpy and it is hard to even conclude that the worst is behind China. Firstly, COVID pandemic in China is likely to be unstable with the large uncertainty of omicron variant. There can be repeated lockdown in coming months should infection cases rise again. Secondly and perhaps more importantly, the prospect of more state control and regulatory oversight towards private sector will likely reign in growth and disturb the recovery trajectory.

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Analyst Declaration
I, Alex Ng, the lead analyst declare that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further declare that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.