Recovery Trend in Central Gyeonggi Remains Valid... "Speed Falls Short of Expectations"

Hi Investment & Securities Report
July China Major Economic Indicators Show Slower Recovery Pace
Traditional SOC and Digital Infrastructure Investment to Drive Economic Recovery in Q3

[Asia Economy Reporter Minji Lee] Although China's economic recovery appears to have somewhat slowed down, there is a forecast that the recovery trend can continue.

According to Haitou Securities on the 17th, major Chinese economic indicators for July showed that the pace of economic recovery somewhat decelerated. China's industrial production in July rose 4.8% year-on-year, maintaining the same level as in June but slightly below market expectations. The fixed asset investment growth rate improved to -1.6% compared to -3.1% in June, but it was significantly below the market forecast of 0.1%.

The passenger car sales growth rate in July increased by 9% year-on-year, but overall retail sales growth showed a contraction. Although an investment-driven economic recovery trend continues, the consumption cycle recovery is analyzed to be slower than expected.

In the case of fixed asset investment, improvement was seen thanks to traditional infrastructure investments through the issuance of local special bonds and special national bonds. The real estate investment growth rate in July was 3.4% year-on-year, with a larger increase compared to June, but manufacturing investment continued to contract for the eighth consecutive month since January, showing -10.2%.

Researcher Sanghyun Park of Haitou Securities said, “Considering the current trend, the fixed asset investment growth rate in August is expected to turn positive for the first time this year,” adding, “Since related investments for flood damage recovery in August and September are likely to increase, the pace of investment recovery will maintain a solid trend.”

Source=Hi Investment & Securities

Looking at investments by sector, the IT sector's investment growth rate is maintaining a solid trend. The fixed investment growth rate in the IT sector in July recorded a double-digit increase of 10.7%. The industrial production growth rate in the IT sector was also 6.7%, surpassing the overall industrial production growth rate. The fixed investment growth rate in the automobile sector, which turned negative since last October, showed -19.9% in July, still recording a decrease in the -20% range, indicating that the investment slump has not been overcome.

Researcher Park said, “China's economy continues to recover supported by traditional SOC investments and digital infrastructure investments driven by government policies, but the pace of economic recovery falls short of expectations,” adding, “The slow recovery of the manufacturing economy due to delays in the global supply chain recovery, employment market sluggishness caused by COVID-19, and flood damage have had an impact.”

Potential risks that could affect China's economic recovery include trade conflicts with the United States and possible delays in the global supply chain due to COVID-19. However, China is highly likely to sustain the recovery trend in the fixed investment cycle centered on traditional SOC investments and digital infrastructure investments. Flood recovery projects are also expected to drive China's economic recovery in the third quarter. Researcher Park explained, “Although the consumption cycle recovery is weaker than expected, considering that consumer sentiment is recovering mainly around automobile demand, consumption momentum will gradually strengthen,” adding, “Leading economic indicators, improvements in producer prices, and a favorable rise in the manufacturing PMI support that the economic recovery trend remains valid.”

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