04 May 2020

China’s Economic Indicators Tick Up As a Gradual Recovery Continues

China’s Economic Indicators Tick Up As a Gradual Recovery Continues

Going into 2020, we expected China’s economy to modestly decelerate from the 6.1% growth rate in 2019, but to cyclically improve as headwinds from the US-China trade war subsided. The coronavirus outbreak in China and the ensuing large-scale lockdown to contain the virus changed the equation. More than three months since the world’s first coronavirus lockdown, which slowed activity in the world’s second-largest economy to a standstill, China’s economic indicators are beginning to pick up again – and we expect the rebound to continue to accelerate in the second half of the year.

China goes back to work

As of the end of April, the reported number of coronavirus cases in China showed that the lockdown measures have achieved a measure of success. The daily new confirmed cases indicate that China’s “coronavirus curve” has essentially flattened since mid-February, with very few increases in new cases since then. Meanwhile, cases overseas surged as the virus moved east to west, first materializing in Europe before hitting in the US, where it has surpassed the sobering benchmark of more than one million reported cases1. By comparison, China has less than one-tenth the number of confirmed cases in the US despite a much larger population.

As the outbreak stabilized, China has implemented an aggressive “back to work” program and even lifted the lockdown on Wuhan, the epicenter of the coronavirus outbreak in China, in early April.

China’s Confirmed Covid-19 Cases Are Now Lower Than in Many Nations

Number of reported Covid-19 cases

Source: WHO, Macrobond, PineBridge Investments calculations as of 29 April 2020. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

Economic indicators are trending up

Macroeconomic indicators by nature are lagging; investors and economists are just getting the first few estimates of the economic damage resulting from coronavirus lockdowns in various parts of the world. In China, the first economic indicators after the coronavirus outbreak showed an unprecedented halt in economic activity. Before the official reports of first quarter GDP, which were released in April, and even the much-watched monthly purchasing managers’ index (PMI) surveys, we observed activity in China essentially at a standstill in February following the Chinese New Year holiday. This was reflected in high-frequency indicators like coal usage, a proxy for China’s industrial sector, traffic congestion, and property sales.

Two months since the Chinese New Year period, we are getting a much clearer picture of the economic damage that has occurred so far, and some reasons to be optimistic. As hinted by the historic drop in PMIs, China’s first quarter GDP also fell to historic lows – recording a yearly contraction for the first time in a series going back to the 1970s. Annual GDP growth is on track for the slowest pace on record.

China’s First Quarter GDP Growth Dipped to Historic Lows

Source: Macrobond, PineBridge calculations as of 29 April 2020. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

More recently, however, we have seen signs that economic activity is rebounding. First, surveys from purchasing managers have bounced back sharply from the lows seen in February. The average of the National Bureau of Statistics and Caixin manufacturing indexes, representing both larger and smaller manufacturing firms, improved to 51.1 in March from 38 in February – essentially back to the levels witnessed prior to the coronavirus outbreak. Though the average of the non-manufacturing PMI indices still show a contraction at 47.7, lagging the industrial sector, it’s up nearly 20 points from February. Understandably, the services side of the economy has been slower to reopen than the industrial side. Venues like cinemas and restaurants are struggling to find demand compared with the state-backed factories.

China’s Industrial Sector Is Recovering Faster Than Services

Source: Macrobond, PineBridge Investments as of 29 April 2020. For illustrative purposes only. We are not soliciting or recommending any action based on this material.

Risks and opportunities lie ahead

We anticipate growth will continue accelerating during the second half of the year, which should bring China’s annual real GDP growth rate to 3%. We expect more fiscal stimulus to be announced, possibly during the National People’s Congress (China’s annual legislative session), which has been rescheduled to late May from March due to public health concerns. During that meeting, we also expect policymakers to eschew the usual hard GDP growth target given the unprecedented volatility underlying the macroeconomic backdrop, and instead target more credit growth and monetary policy support.

However, several risks lie ahead this year. First is the slow resumption of economic activity overseas after the lockdowns, with consequences on demand for Chinese exports. Second is the potential for another flare-up of the US-China trade war. Rhetoric between the two countries has become more acrimonious in recent weeks, and China is unlikely to meet the purchase agreement clause under the Phase One deal agreed to in January, given the slump in domestic demand.

All told, we see both risks and opportunities ahead as China’s economic indicators continue to trend up.

Visit our Coronavirus in Context page for more of our latest perspectives on the impact of Covid-19 on economies and asset classes.


1World Health Organization as of 4 May 2020.


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