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China Recorded Strong Recovery in 2Q20 but Domestic Demand Remained Weak. Risks Skewed to Downside in Second Half

GDP expanded +3.2% y/y in 2Q20, beating consensus of +2.4%. From a quarter ago, the expanded jumped+11.5%. Concerning major macroeconomic indicators in June, industrial production (IP) rose +4.8% y/y in June, in line with expectations and accelerating from +4.4% in May. Urban fixed asset investment (FAI) declined -3.1% y/y in the first half of the year, compared with consensus of -3.3%. For June alone, FAI grew +4.1% y/y, improving form +3.7% a month ago. Concerning the breakdown, manufacturing investment fell -5.3% y/y, narrowing the contraction from -5.3% in May. Infrastructure investments grew +7.2% in June, moderating from +12.5% in May. Meanwhile, growth in property investment steadied at +8.4%.

On the demand side, retail sales contracted -1.8% y/y, following a -2.8% decline in May. The market had anticipated a mild expansion of +0.5%. Recovery in a number of sectors remained limited. For instance, catering spending declined -15.2%, following a -18.9% contraction in May. Automobile sales dropped -8.2%, after gaining +3.5% in May. On the positive note, online sales of goods soared +25.2% in June, accelerating form +22% in the prior month.

The set of data revealed that economic activities have improved in China over the past months, as a result of the government’s expansionary monetary policy and fiscal stimulus. However, we remain cautious risks are skewed to the downside in the second half of the year as the government is expected to provide less support to the economy and US-China tensions escalate.

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