"China's Economy Has Passed the Bottom but Recovery Is Still Not Smooth"

Partial Recovery Through Infrastructure and IT Sector Investment
"More Proactive Stimulus Measures Needed at Government Level"

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] An analysis has emerged that China's economy is still struggling to shake off the shadow of the recession caused by the novel coronavirus disease (COVID-19). Although the bottom has passed, the recovery trend is not smooth due to weak stimulus measures and global supply chain disruptions.

On the 16th, Hi Investment & Securities made this analysis based on major Chinese economic indicators from last month. Notably, the growth rates of industrial production, fixed investment, and retail sales were considered below market expectations. Sanghyun Park, a researcher at Hi Investment & Securities, explained, "In April, industrial production recorded a positive growth rate of 3.9% year-on-year, but the growth rates of fixed investment and retail sales (cumulative from the beginning of the year) continued to decline at -10.3% and -16.2%, respectively. Fixed investment improved significantly from -16.1% in March to -10.3% in April, but retail sales showed only a slight improvement from -19% in March to -16.2% in April."

This indicates that the consumer recovery is much slower than expected. Various reasons are cited. First, although the spread of COVID-19 within China has calmed compared to before, strong controls are still in place, which is interpreted as restricting consumption. Additionally, the ongoing spread of COVID-19, global supply chain paralysis due to travel restrictions in developed countries, and a sharp rise in unemployment within China have weakened consumer spending power. The weaker-than-expected stimulus measures are also slowing the pace of economic normalization. Researcher Park diagnosed, "China's economy has clearly passed the bottom, but the recovery trend is not smooth due to weak stimulus measures and global supply chain disruptions."

Considering that the global economy is still contracting and the recovery of global supply chains is slow, there is an analysis that the key will be whether active stimulus measures are implemented after the largest political event in China, the Two Sessions (National People's Congress and Chinese People's Political Consultative Conference). Also noteworthy is that infrastructure-related real estate investment and the information technology (IT) industry, which are benefiting from stimulus measures, are relatively healthy. Researcher Park said, "Local governments in China are encouraging infrastructure-related investments, and the growth rate of real estate-related investments is showing a relatively favorable improvement trend compared to manufacturing investment growth rates. The increase in excavator sales last month, following March, also reflects the positive atmosphere for infrastructure investment."

Source=Hi Investment & Securities

The IT-related industry is also showing a 'V-shaped' rebound. Researcher Park said, "Last month, the industrial production growth rate of the IT sector turned positive from -2.8% year-on-year in March to +1.8% in April, and fixed investment in the IT sector sharply rebounded from -10.1% in March to +1.1% in April. This is due to the recovery in smartphone demand and the Chinese government's promotion of 'new infrastructure investment,' focusing on digital infrastructure investment." Ultimately, some sectors relying on stimulus measures amid global supply chain disruptions are leading the normalization of China's economy.

Source=Hi Investment & Securities

However, there are concerns that infrastructure and IT investments alone are insufficient to achieve full economic growth. Therefore, more active domestic demand stimulus policies are necessary. Researcher Park stated, "Considering that China is facing a major employment crisis for the first time since the reform and opening up, strong stimulus measures are more urgent than ever. The stimulus cards that the Chinese government will present at the Two Sessions starting on the 21st are likely to determine the speed of China's economic normalization."

This content was produced with the assistance of AI translation services.