China’s economic recovery continues

Chart of the week

China’s economic data for the first two months of 2021 show three key indicators improving significantly: year-on-year, industrial output rose 35.1%, retail sales were up 33.8%, and investment grew +35.0%. In addition, China’s foreign trade data, which were released earlier in the month, rose sharply with exports particularly strong at +60.6%.

Our analysis

These figures alone do not tell us a great deal about China’s economic momentum. The year-on-year changes are comparing activity levels from this year with the same period in 2020 when the Chinese authorities closed whole sections of the economy. The low base being used for the year-on-year comparison results in an artificially strong rebound.

A more accurate picture can be gleaned by seasonally adjusting data to compare variations from one month to the next.  Although seasonally adjusted data are rare for China, they are available for industrial output, retail sales, and investment.

Data quality issues aside, both industrial output and investment for January and February seem to be improving at healthy growth rates of 4.1% and 15.1% respectively (annualised). In contrast, retail sales appear to have slowed (-2.5% annualised) due to the travel restrictions that were imposed during Chinese New Year.

Overall, China’s economic recovery appears to be continuing and with activity levels returning to normal, the authorities can refocus on managing financial risk. However, they are unlikely to tighten economic policy very sharply as growth and employment remain key targets. In other words, a delicate balancing act faces the Chinese authorities.


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The following opinion was written on March 17th 2021 and is susceptible of changing.


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