Summary: China's Q2 GDP growth turned from negative to positive, achieving positive growth of 3.2%.
On July 14, the front page of Yicai Daily published a report titled "Five Leading Indicators Show Accelerating Recovery, Q2 Economic Growth Likely to Turn Positive", analyzing five leading indicators including industrial electricity consumption, crude steel output and excavator sales, predicting that Q2 GDP growth would likely turn positive.
The 3.2% growth was significantly better than market expectations. The previously released July 2020 "Yicai Chief Economist Confidence Index" stood at 52.48, rebounding to a two-year high. The survey showed that the domestic economy is recovering steadily in the short term, and economists' average forecast for Q2 GDP growth rose sharply from the previous quarter's published figure of -6.8% to 2.37%.
The latest official data also showed that various economic indicators rebounded significantly in June. Value added of industrial enterprises above designated size grew for three consecutive months; the declines in growth of total retail sales of consumer goods and fixed asset investment continued to narrow; the surveyed urban unemployment rate declined; and the decline in residents' real income narrowed.
Liu Aihua, spokesperson for the National Bureau of Statistics and director of the Department of Comprehensive Statistics of National Economy, said at a press conference held by the State Council Information Office on the 16th that in the first half of the year, China's economy declined first and then rebounded, with Q2 economic growth turning from negative to positive, major indicators showing restorative growth, and economic performance recovering steadily.
Liu also said that judging from the rebound of various economic indicators in the first half of the year, especially in Q2, there is support for sustained economic recovery in the second half of the year. The current policy is to maintain a certain degree of flexibility, and in the second half of the year, appropriate adjustments will be made based on how the situation develops, the realization of the "six stability" tasks and the implementation of the "six guarantees" tasks.
GDP growth turned positive. In the first half of the year, China's economy gradually overcame the adverse effects of the epidemic, showing restorative growth and steady recovery, with the resilience and vitality of development further demonstrated.
Although this year's government work report did not set a specific economic growth target, GDP growth remains a focus of market attention. Data released by the NBS on the 16th showed that according to preliminary calculations, GDP in the first half of the year was 45.6614 trillion yuan, down 1.6% year on year at comparable prices. By quarter, Q1 fell 6.8% year on year, while Q2 grew 3.2%.
Liu Aihua said that as a large developing country with a population of 1.4 billion, it is no easy feat for China to effectively control the epidemic in a short period, turn the economy from decline to growth, and maintain overall social and economic stability. This highlights the strong resilience and potential of China's economy, and also reflects the effects of the comprehensive policies of the CPC Central Committee and the State Council.
Chen Yuyu, director of the Institute of Economic Policy Research at Peking University and professor of applied economics, said in an interview with Yicai reporters that China's economy has achieved good results in responding to the impact of the epidemic. The 3.2% growth in Q2 means that China has completely emerged from the economic shutdown caused by the epidemic and has embarked on the path of epidemic prevention and economic recovery.
In fact, the indicator data released successively in recent days have already revealed strong signs of economic recovery. Both import and export growth turned positive; the manufacturing PMI has been above the boom-bust line for four consecutive months; port cargo throughput achieved positive growth for three consecutive months; total electricity consumption in June grew 6.1%; and a series of high-frequency data such as crude steel output, excavator sales and express delivery volume also continued to improve, confirming the fundamentals of strong supply and demand and rapid recovery in China's economy.
Wu Chaoming, deputy director of the Caixin Research Institute, told Yicai that Q2 GDP grew 3.2% year on year, far higher than the -6.8% growth in Q1, and the momentum of economic growth further recovered. In June, industrial value added grew 4.8% year on year, recording positive growth for three consecutive months, and repair on the production side has been basically completed.
Data showed that in the first half of the year, the value added of industrial enterprises above designated size nationwide fell 1.3% year on year. In June, it grew 4.8% year on year, 0.4 percentage points faster than in May, marking growth for three consecutive months; on a month-on-month basis, it grew 1.3%.
Insufficient demand remains a weak point. Judging from consumption and investment data, the repair on the demand side is still not as good as the supply side. Zhang Liqun, a researcher at the Department of Macroeconomic Research of the Development Research Center of the State Council, said that the most prominent problem restricting further economic recovery is still insufficient demand. If this problem cannot be effectively solved, enterprises will face greater difficulties in further ramping up production, experiencing sales difficulties and pressure on capital turnover, and they will not be willing to continue increasing turnover and inventories.
In investment, in the first half of the year, national fixed asset investment (excluding rural households) was 28.1603 trillion yuan, down 3.1% year on year, with the decline narrowing by 3.2 percentage points from the January-May period and 13 percentage points from Q1. By sector, infrastructure investment fell 2.7% and manufacturing investment fell 11.7%, with declines narrowing by 17.0 and 13.5 percentage points respectively from Q1; real estate development investment took the lead in turning positive at 1.9% growth, compared with a 7.7% decline in Q1.
Chen Yuyu told Yicai reporters that fixed asset investment is showing strong momentum and has served as the main force of economic recovery, already exceeding the pre-epidemic level. Moreover, investment growth is across all three industries, making it a very powerful force. In addition, foreign investment has achieved cumulative positive growth, indicating that China's ability to attract foreign investment is continuously strengthening and its efforts in reform and opening-up are being intensified.
This year, real estate remains an important factor supporting terminal demand in the economy. Zhang Bo, head of the branch of 58 Anjuke Real Estate Research Institute, told Yicai reporters that the year-on-year growth of real estate development investment turned from negative to positive. This fully shows that confidence on the real estate enterprise side has fully recovered. In particular, residential investment grew 2.6%, further demonstrating that real estate enterprises made strong efforts in the residential segment in Q2.
Liu Aihua said that real estate investment turned positive in the first half of the year, growing 1.9%, but at the same time, we should also note that more real estate market indicators, such as the floor area of newly started housing, land purchased area and commercial housing sales, are still in decline. Therefore, we should remain observant about the trend of real estate in the second half of the year.
On the consumption front, market sales are gradually improving. In the first half of the year, total retail sales of consumer goods reached 17.2256 trillion yuan, down 11.4% year on year. In June, total retail sales of consumer goods were 3.3526 trillion yuan, down 1.8% year on year, with the decline narrowing by 1 percentage point from May.
Liu Aihua said that regarding the growth trend of the consumer market in the second half of the year, on the one hand, with the effective advancement of epidemic prevention and control, consumption convenience is gradually improving; on the other hand, with the progressive advancement of supply-side structural reform, the supply of consumer goods is also being continuously optimized. Although the consumption trend in the second half of the year faces the above favorable conditions, it also faces unfavorable conditions: in the first half of the year, the per capita disposable income of residents nationwide grew nominally, but real growth fell 1.3%. Therefore, greater efforts must be made to cultivate consumption capacity in the second half of the year.
Chen Yuyu told Yicai reporters, "Facing the uncertainty of the global epidemic, the Chinese government should do more to manage expectations that affect investor and public confidence, so as to reduce the impact of deferred consumption caused by epidemic uncertainty." Liu Aihua said that the sustained economic recovery in the second half of the year has support, as indicated by the rebound of various economic indicators in the first half, especially in the second quarter.
First, the steady economic recovery in the first half has laid a solid foundation for sustained recovery in the second half. At the same time, many new industries, new business forms and new models have emerged during the epidemic, which will continue to provide strong support for the economic rebound. New technologies represented by cloud computing, big data, and artificial intelligence are developing rapidly, and new industries such as the digital economy, intelligent manufacturing, and life and health have formed more growth poles. These growth poles will provide more support for the next stage of economic growth.
More importantly, the effects of macro policies will further manifest. Liu Aihua said that in the first half, in response to the impact of the epidemic, China adopted fiscal and tax support, financial support, and comprehensively strengthened employment-first policies. These policies have already achieved results. This has accumulated experience for better responding to the epidemic impact in the second half, while also further strengthening confidence. At the same time, the epidemic shock has exposed problems in some areas, prompting us to further shore up shortcomings and strengthen weak links, increase innovation efforts, and enhance the stamina and vitality of economic development.
Wu Chaoming told Yicai reporters that looking ahead to the second half, as the implementation and effects of previous monetary and fiscal stimulus policies accelerate, domestic GDP growth will show quarter-by-quarter improvement, and annual growth is expected to reach 2.6%-3%. A pattern of investment-driven economic recovery has taken shape, with infrastructure leading, real estate following, and structural optimization. Moreover, the results of structural adjustment are emerging, and the transition between old and new growth drivers will accelerate significantly.
Regarding the economic trend in the second half, Chen Yuyu said that GDP growth in the third and fourth quarters may rebound to 5%-6%, and the full-year economic growth rate may be 2%-3%.
Chen Yuyu believes that the focus of macro policies in the second half should center on three aspects. First, the various macro policies introduced in the first half, such as proactive fiscal policy, monetary policy that ensures the liquidity of the entire financial system, and structural relief policies for small and medium-sized enterprises, have all achieved good results. In the second half, the implementation of the "six guarantees" tasks should continue, with ensuring people's livelihoods and employment being the key points.
Second, multiple measures should be taken to boost consumption and expand domestic demand, especially to enhance consumer confidence and positive expectations for the future. Every effort should be made to increase residents' income, protect low-income earners and other vulnerable groups, and subsidy policies can be made more precise and effective.
Third, measures to address the short-term impact of the epidemic should be combined with long-term structural adjustment, reform, and opening up. This is the fundamental remedy for boosting demand and achieving steady and long-term development. A sound incentive mechanism should be established, and policies encouraging enterprise technological innovation and business model innovation should be introduced. Within a stable legal framework and with full protection of property rights, Chinese enterprises and market participants should have long-term stable expectations.