over 3 years ago • 2 mins
At least one country’s economic recovery looks set to be V-shaped – but with certain sectors doing most of the heavy lifting, investing in China may demand discrimination 🧐
Call it a deadlift: data out late last week showed Chinese economic growth lifted itself out of a morbid 36% quarter-on-quarter drop in the first three months of 2020 to post a surprisingly large 56% increase across April, May, and June.
In fact, China’s economy grew 3.2% last quarter compared to a year before – half what it hoped for last spring, but still the sort of positive stat the no-doubt recession-racked US and Europe are unlikely to see for another year yet.
Behind that headline figure, however, sits a barbell shape. The country’s “new economy” – sectors like ecommerce and tech – saw double-digit year-on-year growth last quarter, with the “old economy” centered on oil-guzzling industry and construction also performing well. In the middle, however, offline services remained weak, as did consumer spending 🏋️♀️
Chinese stocks’ movements have also been V-shaped in recent days. While the mainland CSI 300 index fell 5% on Thursday following the release of last quarter’s bumpy economic data, it rose 3% on Monday.
That may have been partly because China’s financial authorities are planning to let the country’s insurers put more money in stocks. But some investors are also optimistic that the government, while likely reducing widespread tax breaks and other all-out support for the Chinese economy, will still deploy generous targeted interventions for certain struggling sectors.
With Chinese households’ disposable income only growing at half the 2019 rate, areas like travel and leisure are unlikely to recover as quickly as, say, manufacturing. Restaurant activity remains 15% down on last year, while overall retail sales fell another 4% last quarter.
Targeted support could help even out the recovery – and all else equal, the Chinese economy’s emergence from lockdown should stay V-shaped. But risks remain. Besides historically heavy rain, storm clouds over the US and UK regarding Hong Kong may dampen overseas markets for Chinese goods… ⛈
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