Chinese growth is holding and there’s no stimulus…yet

Goldman with the note that pretty much sums up my view: 

China’s Q2 real GDP growth was reported at 7.9% yoy, marginally below market expectations of 8% yoy, but key activity indicators remained solid and surprised to the upside in June. June industrial production came in at 8.3% yoy, vs 8.8% yoy in May, though automobile manufacturing continued to be a drag. Retail sales growth slowed to 12.1% yoy and automobile sales also moderated from the previous month. Fixed asset investment accelerated on a single month basis – manufacturing investment picked up while property investments slowed. The surveyed unemployment rate was unchanged in June.

Key numbers:

GDP: +7.9% yoy in Q2 (GS forecast: +7.5% yoy, Bloomberg consensus: +8% yoy).+1.3% quarter-over-quarter non-annualized sa based on NBS estimate. Q1 2021:+18.3% yoy, +0.4% quarter-over-quarter non-annualized sa based on NBS estimate(revised from +0.6%).

Industrial production (IP): 8.3% yoy in June (GS forecast: +7.5% yoy, Bloomberg consensus: +7.9% yoy). May: +8.8% yoy. Note sequential figures are highly sensitive to the specific seasonal adjustment methodology (NBS estimates 0.56% s.a. non-annualized, vs. +0.53% in May, GS estimates based on fixed seasonal factors: +18.2% annualized, vs. -3.6% in May).

Retail sales: 12.1% yoy in June (GS: 10.0% yoy, consensus: 10.8% yoy); May:+12.4% you.

Fixed asset investment (FAI): 12.6% ytd yoy in June (GS: +13.0% ytd yoy,consensus: +12% ytd yoy); June single month: 7% yoy, vs. May: +5.6% you.

Main points

1. June industrial production increased 8.3% yoy, above expectations. Production inautomobiles, electric machinery and ferrous metals smelting slowed most significantly(Exhibit 2). Softer auto production likely reflected semiconductor shortages, while metals production may have been impacted by temporary suspensions of some activities ahead of the CCP’s 100th anniversary celebration.

2. Fixed asset investment (FAI) growth picked up in June, also above consensus expectations. Manufacturing investment accelerated to 17.0% yoy in June (vs. 13.7%yoy in May). Property investment growth moderated further to 6.0% yoy in June (vs.9.8% in May). Infrastructure investment growth improved to 1.9% yoy in June (vs. 0%yoy in May). On a two-year average basis, FAI increased 5.5% per year from June 2019to June 2021, roughly in line with +5.4% for 2019 as a whole.

3. Retail sales growth was also above market expectations. Sequentially it accelerated to 2.9% mom in June after seasonal adjustment, vs. +2.1% in May. On a real basis, retail sales growth in June moderated slightly to 9.8% yoy from 10.1% yoy in May. Automobile sales rose 4.5% yoy (vs. 6.3% yoy in May). Catering sales rose 20.2% you in June (vs. +26.6% yoy in May). On a sequential basis, catering sales decelerated to+1.3% non-annualized sa in June (vs. +3.2% in May). Online goods sales growth picked up to +14.6% yoy in June (vs. +9.7% yoy in May).

4. The Services Industry Output Index, which is on a real basis and tracks tertiary GDP growth closely, rose +10.9% yoy in June (vs. +12.5% yoy in May; average annual growth +6.5% yoy in June over the past 2 years). In sequential terms, it rose 0.6%mom sa non-annualized in June.

5. Property sales volume moderated to 7.5% yoy (vs. +9.2% in May) while housing completions surged 66.6% yoy in June (vs. -3.1% in May). The decline in housing starts narrowed to -3.8% yoy in June from -6.1% yoy in May. Building material sales edged down to +19.1% yoy (vs. +20.3% in May). In contrast, furniture sales and home appliance sales picked up to 13.4% and 8.9% yoy in June, respectively (vs. 12.6% and3.1% in May).15 July 20212Goldman SachsChina

6. The nationwide survey-based unemployment rate and 31-city surveyed unemployment rate remained unchanged at 5.0% and 5.2% in June, respectively. The unemployment rate for labor without local hukou rose marginally to 5.1% in June from 5% in May. Migrant worker population rose to 182mn, 2.7% higher than Q2 2020 and0.1% higher than Q2 2019.

7. In general June activity growth remained solid despite idiosyncratic headwinds such as the semiconductor shortage and temporary suspension of certain activities ahead of the 100th anniversary celebration. Industrial production rebounded sequentially after two months of moderation, consumption (in particular goods consumption) continued to recover and investment growth accelerated. Despite the solid data, NBS reiterated the increased cost pressures of corporates from higher commodity prices.

8. This morning the PBOC rolled over RMB100bn MLF and conducted an additionalRMB10bn 7-day reverse repo with rates unchanged at 2.95% and 2.20% respectively. Taking into account the 50bps broad RRR cut, net of maturing MLF, the PBOC has injected RMB710bn of liquidity (though we note another RMB700bn of MLF is scheduled to mature on August 17th). The small amount of MLF roll-over and OMOinjection might mainly serve the purpose of interest rate guidance in response to investors’ speculation of policy rate cuts.

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