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China’s consumer recovery under scrutiny as economy rebounds

China’s consumer recovery under scrutiny as economy rebounds
Shoppers at a mall in Shanghai, China, on Saturday, 8 April 2023. (Photo: Qilai Shen/Bloomberg)

China’s high frequency indicators show the economy continued to expand in April, although the strength of the recovery is under scrutiny amid an uncertain global environment and relatively high unemployment.

Bloomberg’s aggregate index of eight early indicators rose one level to 5 in April, largely due to a jump in car and home sales from a year earlier. The comparisons with last year overstate the strength in consumption, though, since Shanghai was in lockdown then, which resulted in a slump in economic activity at the time.

The world’s second-largest economy expanded at the fastest pace in a year last quarter, with analysts watching closely to see if the recovery can be sustained. Several major banks have raised their growth forecasts for the year to about 6% or higher, with many analysts debating whether policymakers will begin scaling back monetary and fiscal support.

Economists surveyed by Bloomberg now see China’s growth accelerating to 5.6% this year, up from 5.3% previously.

April’s indicators were largely positive, suggesting the economy’s recovery was on track. Standard Chartered Plc’s confidence index for small businesses remained above 50 for a third straight month in April, a sign that activity continued to expand. The accommodation and catering sector recovered sharply after March’s decline, transportation remained robust while real estate and IT growth eased, the bank said. 

In the manufacturing sector, the sub-index for production and sales rose to a 16-month high as new export orders grew.

Global trade conditions remained subdued in April, although slightly better than in the previous month. South Korea’s exports — a barometer for global demand — declined 11% year-on-year in the first 20 days of April, compared with a nearly 18% drop in March. That should help sustain the rebound in China’s exports. 

The extremely low base of comparison last year helped to propel China’s vehicle sales in April, according to weekly data from the China Passenger Car Association. Property sales in the country’s tier-1 cities also soared for the same reason, figures provided by China Real Estate Information Corp. showed.

The strength of consumer spending remains uncertain given unemployment rates, especially for young people, remain high and households continue to boost savings rather than splurge. 

Steel inventories declined in April, suggesting better demand. However, broader demand for industrial goods likely remained weak, with copper prices falling from the previous month and producer deflation worsening, according to an index tracking factory prices. 

Early indicators

Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.

  • Major onshore stocks – CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on the 25th of the month).
  • Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
  • Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand.
  • Copper prices – Spot price for refined copper in Shanghai market (yuan/metric ton).
  • South Korean exports – South Korean exports in the first 20 days of each month (year-on-year change).
  • Factory inflation tracker – Bloomberg Economics-created tracker for Chinese producer prices (year-on-year change).
  • Small and medium-sized business confidence – Survey of companies conducted by Standard Chartered.
  • Passenger car sales – Monthly result calculated from the weekly average sales data released by the China Passenger Car Association. BM/DM

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