China Q2 and H1 Overview – Steady and Sound Growth Momentum Consolidated

On the 15th of July 2021, the Chinese government published the economic data for the second quarter of 2021. When comparing the results to Q1 2021 the economic performance appears to have slowed at first sight, however, a closer look shows that the economy’s performance in Q2 was in fact improved compared to the first quarter of the year.

Below we highlight the most important takeaways of the economic data which has just been released.

GDP growth came in below expectations

In the second quarter of 2021, China’s economy saw a year-on-year GDP growth rate of 7.9% compared to the second quarter of 2020. Growth slowed compared to the 18.3% year-on year GDP growth of the first quarter, however as discussed in our Q1 overview, this growth result was heavily impacted by the COVID-19 outbreak and extended Spring Festival in 2020. For the first half year of 2021, the economy grew by 12.7% year-on-year, compared to a -1.6% contraction for the same period in 2020

Even though the year-on-year GDP growth appears to have slowed in the second quarter when comparing to the first quarter, the data is distorted by the negative performance in the first half of 2020. The two-year average growth rate in the second quarter was 5.5%, up from 5.0% in the first quarter. The quarter-on-quarter GDP growth of Q2 was 1.3%, an increase from the 0.4% of the first quarter, showing that the economy improved in the second quarter.

Momentum continued for Imports and Exports

The import and export of goods continued to grow quickly. In the second quarter of 2021, the total aggregate value of imports and exports of goods increased by 27.1% year-on-year, compared to 29.2% in Q1. In particular, the total value of exports went up by 28.1% year-on-year and imports went up by 25.9% year-on-year basis.

Further reduction in unemployment rate, employment generally stable

The surveyed unemployment rate in urban areas decreased to 5.0% at the end June, down from 5.3% in March, and 0.7% lower than in June 2020. During Q2 the employment situation stabilized, decreasing by to 5.1% in April and 5.0% in May before remaining at the same level in June.

Purchasing Managers’ Index (PMI) trends down, but remains in expansionary territory

The composite PMI output index for large enterprises is a weighted summation of the manufacturing output index and non-manufacturing business activity index. The PMI is based on five indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment. If the PMI index is 50 this indicates no change, whereas a number over 50 indicates improvement and a number below 50 suggests a decline.

At the end of June, the Composite PMI for large enterprises decreased to 52.9, remaining above the threshold for sixteen months in a row. The indicator showed a significant improvement in March to 55.3 before trending down to 53.8 in April, 54.2 in May and 52.9 in June.

Continued growth in Retail Sales, driven by accelerated growth of upgraded consumer products

In the first half of 2021, total retail sales of consumer goods increased by 23.0% year-on-year with an average two-year growth of 4.4%. More specifically, in Q2 total retail sales went up by 13.9% year-on-year with an average two-year growth of 4.6%, compared to 33.9% y-o-y in Q1, with an average two-year growth of 4.2%.

Online retail sales continued to perform strong with a year-on-year growth of 23.2% and an average two-year growth of 15.0%, or 1.5 percentage points faster than that of the first quarter.

Industrial Production grew steadily

The value added of industrial enterprises, also known as the industrial growth rate, grew by 15.9% year on year in H1 with an average two-year growth of 7.0% (0.2% faster than Q1 2021). Specifically, that of the second quarter went up by 8.9% year on year compared to 24.5% y-o-y in Q1.

In June, the total value added of the industrial enterprises grew by 8.3% year on year, with an average two-year growth of 6.5%.

Per sector, high-tech manufacturing grew by 22.6% year on year, with an average two-year growth of 13.2%. In terms of productions, new-energy automobiles (205.0%), industrial robots (69.8%), and integrated circuits (48.1%) showed strong year-on-year performance and average two-year growth all exceeding 30.0%.

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