Surprise! The Chinese economy expanded fast enough in Q2 to keep the full-year growth target well within reach, a result the snarky among you might call “convenient.”
The Party’s under a lot of pressure to keep up appearances amid still tepid domestic demand and what a customs official on Monday described as a “complex, grim and uncertain” external environment defined by rising “unilateralism and protectionism.”
Suffice to say the headwinds are myriad and gale-force, but that doesn’t matter so much when you’re just making up the data. I’m just joking. I mean, not entirely. The data’s suspect. But it’s not literally made up. It’s just “managed.”
Anyway, growth in the April-June period was 5.2% YoY, the NBS said Tuesday. Consensus expected 5.1% from that readout.
Taken with Q1’s strong 5.4% showing, the world’s second-largest economy’s well on its way to meeting centrally-planned expectations.
If you’re wondering how it’s possible to manage an economy that size to a target set nine months in advance, it’s not. Not possible, I mean, which speaks to the notion that the figures are managed. Recall that real growth was flattered by the deflator for eight straight quarters headed into Tuesday’s release.
In addition to the GDP tally, the NBS released activity data for June which showed retail sales rose 4.8% YoY last month. That was worse than the 5.3% consensus and represented a downshift from the prior month’s advance.
Industrial production, meanwhile, rose 6.8%. Economists were looking for 5.6% there. In May, retail sales growth outpaced IP growth for the first time since December of 2023. Tuesday’s data represents a return to trend. Indeed, the 2ppt growth advantage for IP in June was the widest this year.
Beijing’s endeavored to boost consumption with a somewhat effective, albeit occasionally farcical, subsidies scheme worth CNY300 billion. That initiative certainly helped in May, but might’ve dissipated in June when a handful of locales reportedly halted the program.
Tuesday’s data came on the heels of figures showing exports held up better than expected last month, likely as a result of a temporary tariff truce with the Trump administration. Imports were weak, though, underscoring the tepid domestic demand talking point.
Behind the scenes, China’s at pains to rescue the economy from deeply entrenched factory gate deflation. Producer prices fell a 33rd straight month during June, while consumer prices barely rose. The Party’s now targeting so-called “involution” in a bid to fix an overcapacity problem that’s manifesting as a self-referential race to the bottom (i.e., no-holds-barred price wars).
Such efforts aren’t especially likely to yield meaningful results because, as ever, the problem’s on the demand side. “Ultimately, the main culprits of deflationary pressures are weak demand and a growth model that has focused too much on production and supply,” SocGen’s Michelle Lam said, commenting on the involution debate. “Addressing these would require reforms to promote consumption structurally.” I couldn’t have said it better myself.
Mercifully, credit data released earlier Tuesday showed both aggregate financing and new yuan loans outstripped expectations for last month, but some of that might be window-dressing. As Bloomberg noted, credit growth tends to pick up in June “because banks are motivated to lend out more loans to meet their quarterly targets.”
