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China’s Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

Summary:
Judging by the Chinese stock market, Chinese credit impulse data, and Chinese PMIs, tonight's GDP data should be a big winning rebound proving the communist nation has overcome the viral enemy and is back on its path to global economic domination. Source: Bloomberg The "v-shaped" recovery in all the PMIs is rather impressively well managed... Source: Bloomberg And Total Social Financing is soaring at a record pace... Source: Bloomberg And while trade data rebounded surprisingly in June (as it stepped up efforts to meet the terms of the U.S. trade deal), it remains well down from 2019 in the first six months of 2020, but rebounds are expected to continue to accelerate in all the other macro data released tonight, though most are still expected to be notably lower YoY. Going

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Judging by the Chinese stock market, Chinese credit impulse data, and Chinese PMIs, tonight's GDP data should be a big winning rebound proving the communist nation has overcome the viral enemy and is back on its path to global economic domination.

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

Source: Bloomberg

The "v-shaped" recovery in all the PMIs is rather impressively well managed...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

Source: Bloomberg

And Total Social Financing is soaring at a record pace...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

Source: Bloomberg

And while trade data rebounded surprisingly in June (as it stepped up efforts to meet the terms of the U.S. trade deal), it remains well down from 2019 in the first six months of 2020, but rebounds are expected to continue to accelerate in all the other macro data released tonight, though most are still expected to be notably lower YoY.

Going into the data, the upturn in industrial production is the clearest sign that the Chinese economy expanded in 2Q after cratering in 1Q due to the COVID-19 impact, said Bloomberg Economics’ Chang Shu.

“Even so, weakness in private and external demand means the pace of growth is likely to be well below historical levels.”

“Even so, the revival in consumption probably remains a long way off, given changes in behavior to the detriment of contact-intensive services, as well as stress in the labor market and dented incomes.”

So here's the data:

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

A much stronger than expected rebound (up a record 11.5% QoQ)...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

  • June China Industrial Production YTD YoY BEAT -1.3% vs -1.5% exp and -2.8% in May

  • June China Retail Sales YTD YoY MISS -11.4% vs -11.2% exp and -13.5% in May

  • June China Fixed Asset Investment YTD YoY BEAT -3.1% vs -3.3% exp and -6.3% in May

  • June China Property Investment YTD YoY BEAT +1.9% vs +1.0% exp and -0.3% in May

  • June China Surveyed Jobless Rate BEAT 5.7% vs 5.9% exp and 5.9% in May

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

So, the good news is that GDP rebounded faster than expected, but the bad news is retail sales continued to contract YoY(-1.8% in June against expectations of a 0.5% expansion)...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

The biggest disappointment was a contraction in large enterprise retail sales (-0.4% YoY in June vs +1.3% YoY in May) as the rebound stalls.

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

As Bloomberg's Jeff Black points out, that tells us the recovery is still industry-led, and consumer confidence is still very fragile. That means China’s recovery will be harder to sustain if the world increasingly goes back into lockdown.

Offshore Yuan is back at 4-month highs...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

Bloomberg's Enda Curran notes that one big question remains, is it a rebound or a recovery.

Sceptics will argue that China’s GDP number will overstate the recovery while others say it reflects the rebound seen in underlying indicators on manufacturing, investment and consumption. But all sides will agree that even if GDP turned positive last quarter, it’s still a long way from a full recovery. We know China’s jobs market is under pressure and we know that the rest of the world remains in a funk. Both of which are clear brakes on China getting back to where it was before the crisis.

And for those who see tonight's data and brush it off as implying the next stimulus move is imminent by Chinese officials, Shang-Jin Wei, a China expert at Columbia Business School in New York and formerly chief economist of the Asian Development Bank, warns:

“Prevention of a return or the ‘second wave’ of the virus outbreak is more important than getting a high growth rate for the remainder of the year.”

Additionally, with virus second-wave fears and the Trump administration back in sanction mode and seemingly less inclined to support Phase 1 of the trade deal, let alone Phase 2, perhaps the biggest "V" is now behind China; and none of the China growth is helped by an increasing number of runs of China's banks.

And as Bloomberg's David Ingles notes succinctly, most of the things you've seen in the news and will continue to see in the decades to come can be traced back to this one, single chart...

China's Economy Returns To Growth In Q2 But Retail Sales Continue To Contract

This won't end well.

Tyler Durden
Tyler Durden (a pseudonym) represents the idea that a return to truly efficient markets is a possibility and a necessity. After having experienced the inner workings of capitalism at various asset managers and advisors, Tyler believes that the current model is flawed and a deleveraging at every level of modern society is needed to reinspire the fundamental entrepreneurial spirit.

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