China 2Q data show economy shrinking
Signs are mounting that China’s economy shrank in the second quarter for the first time since 2020, placing the nation’s official statistics under fresh scrutiny as analysts bet the government will avoid acknowledging that slump.
The consensus forecast from economists in a Bloomberg survey is that the government will next week report gross domestic product grew about 1.5 percent in the second quarter from a year earlier. Yet high-frequency data for June and losses in the previous two months suggest the economy contracted over that period due to the lingering effects of lockdowns in dozens of cities.
A quarterly drop in GDP, which has only happened once before, underlines China’s slower rebound from coronavirus curbs than in 2020, providing less of a boost to a struggling global economy. Debate about the accuracy of official data will likely persist this year as President Xi Jinping urges officials to strive to meet an ambitious target for annual GDP growth of about 5.5 percent, while at the same time sticking with a Covid Zero policy that requires tough restrictions wherever virus cases emerge.
“There is no plausible story that GDP growth should be positive in the second quarter,” said Logan Wright, head of China markets research at Rhodium group. “The downturn in household consumption is very significant within both the official retail sales data and other proxies. And the property sector remains a significant drag.”
The evidence from alternative indicators is overwhelming of an ongoing slump in the economy. Travel data shows passenger trips taken on China’s roads were mostly below last year’s levels into July, according to transport figures analyzed by TS Lombard. The number of domestic flights in the quarter was down 62 percent from the same period last year, according to data provider Variflight.
The movement of trucks carrying goods between cities, which researchers say are closely correlated with GDP, show weak activity. in the last week of June there were still about 20 percent fewer trucks on the nations roads compared to a year earlier, according to data from g7 Connect, a digital logistics firm.
in the property market, which accounts for about 20 percent of GDP, home sales remained in a deep slump in the second quarter, according to data from China Real Estate information Corp. The figures show the market hit a bottom in May and stopped getting worse, but is nowhere near actual growth.
Car purchases, which make up about 10 percent of monthly retail sales, fell more than 10 percent in the quarter, according to Bloomberg calculations based on data from the China Association of Automobile Manufacturers.
Other independent estimates show an even worse picture than the high-frequency data. Bain & Co. predicts luxury sales in China fell 30 percent-50 percent in the second quarter from a year earlier. nike inc. reported a 20 percent fall in revenue from China in the three months ended in May and said it was “cautious” on the country’s recovery.
Despite those signs, Beijing would be reluctant to report a contraction in the economy. in May, Premier Li Keqiang said officials should work to ensure the economy expands over the quarter.
“Beijing will never announce a secondquarter contraction, Li Keqiang made that very clear,” Leland Miller, chief executive officer at China Beige Book, which polls Chinese companies on activity levels, told Bloomberg TV. “We think that they are going to throw a number in the 2 percent range out. its not justified by the data.”