IS THE CHINESE RECOVERY FALTERING?

05.06.2023 The Chinese economic survey data has begun to weaken again. Below we look at the economic outlook for the rest of the year.

At the end of last year, the Chinese authorities announced the dismantling of its zero Covid policy. As restrictions on economic activity were lifted it was forecast to raise growth in 2023. However, after an initial boost to business sentiment, the latest economic surveys have begun to turn down again. Manufacturing fell from 49.2 to 48.8 and below the 50 point mark that separates expansion from contraction. The non-manufacturing sector, whilst still on a growth trajectory, fell from 56.4 to 54.5.

The Chinese economic recovery in the first half of the year was always expected to be volatile. This was because the new herd immunity Covid policy was seen as triggering a wave of Covid cases which would burden the healthcare system, dampen consumption and disrupt production. However, if the current economic weakness continues the Chinese government can be expected to authorize more fiscal stimulus and state sponsored infrastructure spending.

In the longer-term China needs to find a new growth model. Previously it had relied on exporting manufactured goods and house building to drive the economy forward. However, a falling Chinese population will limit the future demand for housing while European and American efforts to repatriate some of the more advanced manufacturing, to promote greater supply chain resilience, will act as a headwind for the industrial sector. 

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin