Mingming ( Chief Economist of CITIC Securities )
Since the beginning of this year, the impact of the epidemic, the Russia-Ukraine conflict and other unexpected events have continued to spread, and the Chinese economy is facing challenges. In the second quarter, China's GDP year-on-year growth rate dropped to 0.4%. In terms of industries, the added value of the primary industry increased by 4.4% year-on-year, the secondary industry increased by 0.9%, and the tertiary industry decreased by 0.4%. Since the beginning of this year, the economic and political environment at home and abroad has become increasingly complex and severe. In the face of risks and disturbances from home and abroad, various regions and departments have quickly introduced and implemented a package of stabilizing growth policies, intensified macroeconomic control, and achieved epidemic prevention and control and economic development. Due to the efficient coordination of development, the economy in June recovered significantly compared with April and May, driving the GDP growth rate back to the positive growth range in the second quarter, achieving a year-on-year growth of 2.5% in the first half of the year.
The economy picked up significantly in June
Logistics and supply chain constraints were significantly eased, and there is room for recovery in industrial production. In June, the added value of industrial enterprises above designated size increased by 3.9% year-on-year, a growth rate of 3.2 percentage points higher than the previous month, and a month-on-month increase of 0.84%. Guaranteeing supply and stabilizing prices is the main reason for the relatively strong performance of upstream industrial production. The added value of the mining industry increased by 8.7% year-on-year, of which the coal mining and washing industry increased by 11.2%, and the oil and natural gas mining industry increased by 3.6%. It performed well. It has played a role in ensuring supply and stabilizing prices of energy and industrial raw materials. The manufacturing industry grew by 3.4% year-on-year, with the core supporting factor being the significant easing of logistics and supply chain constraints. In June, the PMI supplier delivery time index recorded 51.3%, an increase of 7.2 percentage points from the previous month, returning to above the critical point. After policies and measures such as ensuring smooth logistics and smooth operation have taken effect, the production environment of some industries with long industrial chains, such as automobiles and equipment manufacturing, has improved significantly. Taking the automobile industry as an example, automobile production in June was 2.577 million units, a year-on-year increase of 26.8%, of which the output of new energy vehicles reached 605,000 units, a year-on-year increase of 120.8%.
The recovery speed of retail consumption is gratifying, and the service industry has picked up. However, the flexibility in the second half of the year needs further observation. The total retail sales of consumer goods in June was 3,874.2 billion yuan, a year-on-year increase of 3.1%, and the growth rate was 9.8 percentage points higher than the previous month. Among them, retail sales of goods increased by 3.9% year-on-year; although catering revenue fell by 4.0% year-on-year, the decline narrowed significantly by 17.1 percentage points. The recovery characteristics of commodity consumption after the impact of this round of epidemic are somewhat similar to those in 2020, but there are also some differences. Boosted by the government's accumulation of epidemic prevention experience and the introduction of a package of policies to stabilize growth, including preferential policies to stimulate automobile consumption, consumption rebounded faster this year than in 2020. This has been verified in June economic data. However, the impact of the epidemic since 2020 has changed some medium-term factors affecting consumption. Issues such as the slowdown in the growth of economic entities and consumer entities, the rise in unemployment, and the decline in residents' income and consumption willingness may have a certain impact on consumer demand. Medium-term pressure will curb the rebound in consumption during the year.
Investment in infrastructure and manufacturing is the "anchor of stability"
The government is committed to expanding effective investment, and investment in infrastructure and manufacturing is the core of stable growth. In the second quarter, investment in fixed assets (excluding farmers) increased by 4.2% year-on-year, and by 1.8% in April. The growth rate accelerated to 4.6% in May, and the growth rate further rebounded to 5.6% in June. Investment in infrastructure and manufacturing is the "anchor of stability" for domestic demand in the second quarter. According to our estimates, in the second quarter, investment in old infrastructure increased by 8.6% year-on-year, and investment in infrastructure (excluding electricity) increased by 6.4% year-on-year. Investment in manufacturing increased by 8.1% year-on-year, with investment in high-tech manufacturing growing significantly faster than the industry average.
Traditional and modern infrastructure are the direction of policy support, and the manufacturing operating environment has entered the channel of improvement. For infrastructure, the package of policies to stabilize growth involves water conservancy projects, transportation infrastructure, urban underground pipe corridor construction and other infrastructure construction. The scope of support for special bonds has also begun to expand from traditional infrastructure to new infrastructure, and new and old infrastructure are related to Some related manufacturing industries will fully enjoy this round of policy dividends. For the manufacturing industry, macro-level pressure comes from upstream and downstream squeezes - high upstream raw material costs and weak downstream demand are real problems facing many midstream manufacturing industries. Declining profits or even losses in the second quarter have become the norm.With the rapid recovery of the economy in the second quarter, there are early signs of demand improvement in the second half of the year, and considering that upstream price pressure has dropped significantly recently, the profitability of the midstream manufacturing industry will bottom out in the third quarter.
Real estate sales are showing an upward trend month-on-month, but it will still take time for investment to pick up. Recently, various cities have successively optimized and adjusted their real estate policies, and implemented city-specific policies from the demand side to guide the real estate industry towards the "three stability" goals and protect reasonable housing demand. Real estate sales bottomed out in June. Although sales amount and sales area fell by 20.8% and 18.3% year-on-year respectively, the declines narrowed by 16.9 and 13.5 percentage points respectively from the previous month. However, there is a certain time lag from the recovery in sales to the turning point of real estate development and investment, and the improvement on the real estate investment side is not obvious. In June, real estate investment fell by 9.1% year-on-year, land purchase area fell by 52.8% year-on-year, and newly started construction area fell by 45.1% year-on-year. The current challenge facing the real estate market is not just the impact of the epidemic. The bigger challenge is the negative credit feedback under the pressure of capital cycle . Sources of funds for real estate development fell by 23.6% year-on-year in June. Among several sub-categories, although the decline in mortgage loans narrowed to less than 20%, the decline in domestic loans, deposits and advances was still more than 30%. At present, personal mortgage loan interest rates are still relatively high, some residents lack confidence and their willingness to buy houses has declined; companies lack confidence in sales and financing and actively cut development plans. How to break the negative cycle of residents' and businesses' expectations without speculating on housing is the key to solving real estate problems.
Historically, the bottom of real estate development and real estate investment often lags behind the bottom of sales by about three quarters. Judging from the current situation, private real estate companies' cash flow and balance sheet problems still need to be further substantially alleviated. Even if the sales rebound path has been opened, the recovery of development investment can only be gradual. The growth rate of real estate investment may bottom out in the second quarter, and the year-on-year decline will narrow in the third and fourth quarters, but a substantial rebound may not occur until 2023.
Exports remain strong, providing solid support for China's economy in the second quarter. The export value in June reached US$331.26 billion, a year-on-year increase of 17.9%, significantly higher than market expectations, and the trade surplus was US$97.94 billion, a year-on-year increase of 95.6%. The sustained high growth of external demand is an important force supporting the economy. According to our calculations, the positive driving effect of exports on GDP in the second quarter reached 2.4-2.5 percentage points. From a national and regional perspective, the export volume between mainland China and its major trading partners continues to recover. Among them, RCEP has become increasingly effective. Mainland China's export trade to ASEAN has maintained high growth, with a year-on-year growth rate of 29%, becoming a major contributor to the continued rebound in exports. Looking forward to the second half of the year, RCEP is expected to have an increasingly significant impact on my country's foreign trade creation, and the growth of trade between China and ASEAN is expected to enhance the resilience of my country's exports. In the short term, overseas consumption is still resilient, and there is no need to worry too much about the risk of a sharp decline in external demand.
The annual CPI is likely to be around 2% year-on-year.
The employment situation has improved marginally, but the employment situation of young people is grim. After the high point of frictional unemployment in July, there may be a significant recovery. The surveyed urban unemployment rate in June was 5.5%, and the surveyed urban unemployment rate in 31 major cities was 5.8%, down 0.4 and 1.1 percentage points respectively from the previous month. However, employment pressure on young people still exists, with the surveyed unemployment rate for people aged 16-24 rising to 19.3% in June. As the economic recovery trend becomes clearer in the second half of the year, the employment situation will continue to improve, and the time node may appear after July. There are certain seasonal patterns in changes in employment pressure and unemployment rate. In the short term, a large number of graduates graduating may lead to a seasonal increase in frictional unemployment in July.
inflation scissors difference continues to narrow, pay attention to the new round of pig cycle. In June, CPI increased by 2.5% year-on-year, 0.4 percentage points higher than the increase in May. PPI increased by 6.1% year-on-year, 0.3 percentage points lower than the previous month. The PPI-CPI scissors gap continued to narrow. CPI In terms of price increases due to the impact of the epidemic, most of the price increase factors have subsided. The subsequent new round of pig cycle will become the main price increase risk. At the same time, the recovery of demand in the service industry due to the resumption of work and production will also cause price increases in corresponding items. CPI The year-on-year CPI may stabilize after breaking through 3% in the third quarter, and the full-year CPI may be around 2% year-on-year.In terms of PPI, there is strong support for international oil prices under the influence of the Russia-Ukraine conflict, which has a sustained impact of imported inflation on my country's crude oil-related industries, but it is relatively controllable. On the one hand, the country attaches great importance to ensuring energy supply and stabilizing prices. The previous 6 major 33 measures to stabilize the economy have emphasized strengthening the production and reserve capacity of coal. In addition, the central bank has launched and issued additional clean coal-related projects. The refinancing tool has offset imported inflation pressure to a certain extent; on the other hand, the overall base of PPI was relatively high last year, and it is expected that the downward trend of PPI year-on-year will not change in the second half of the year.
Economic recovery will be a step-by-step process
Looking forward to the second half of the year, China's economic recovery will be a step-by-step process: Since June, the resumption of work and production in major cities across the country has accelerated, and logistics and supply chain problems have eased. Fiscal and tax incentives and financial support policies have been implemented one after another. The implementation of a package of policies will effectively improve the economic cycle. June and the third quarter will be the fastest period of economic recovery. In the third quarter, the national GDP growth rate is expected to rebound to above 5%. In the fourth quarter, the industry will remain stable, the consumption and service industries will gradually return to trend levels, real estate investment will begin to rebound, and the economy will gradually return to near the potential growth rate. The total repair path is relatively certain, but we must also pay attention to the structural problems.
Judging from the structure of total demand, the driving force of this round of economic recovery will be domestic demand, while external demand is uncertain. In terms of domestic demand, expanding effective investment is the core focus of the government to boost the economy in the second half of the year. In terms of external demand, we need to pay close attention to the risk of major developed economies shifting from stagflation to recession in the second half of the year, and be wary of the possibility that declining global demand will drag down domestic exports. From the perspective of different sectors of the economy, government departments have greater room for borrowing. Sectors led by government or industrial policies, represented by infrastructure and manufacturing, will become the main force for stable growth in the second half of the year. The residential sector's ability to increase leverage is significantly weaker than in 2020, and it is more likely to stabilize leverage . The related consumption and real estate sectors may be slow to recover and relatively inelastic.
The unbalanced recovery may be one of the important challenges for China's economy in the second half of the year. The pressure and responsibility to protect market entities and employment means that local governments will introduce more supporting support policies in the second half of the year. The consumption and service industries have been more severely affected by successive rounds of epidemic disruptions than other sectors, and they are also more closely related to people's livelihood security. On the basis of epidemic prevention and control, local governments need to release comprehensive consumption potential, stabilize current consumption, and prepare for the next epidemic through targeted relief and assistance, exploring new consumption models, relaxing restrictions in key consumption areas and other policy measures. The foundation has been laid for China’s comprehensive economic recovery in the past six months.
For more content, please download 21 Finance APP
