Investment Institute
Macroeconomic Research

AXA IM Talk on Asia & China Market: China’s growth disappoints, but structure improves

  • 28 June 2021 (5 min read)

AXA IM’s Senior Emerging Asia Economist, Aidan Yao, shares his latest macro views on China and Asian Market every month.

This month he reads into China’s mixed macro picture through the latest economic data, with an updated outlook for the second half of this year.

Please find the full script below:

Hello, welcome to our monthly video series, my name is Aidan Yao. I’m the senior Emerging Asia economist here at AXA Investment Managers.

China’s May economic activity data disappointed market expectations. However, looking closely, a lot of the headline weakness was in fact driven by base effects. Once the distortions are removed, the macro picture actually looks more mixed.

On the one hand, industrial production, exports and housing market activity indeed slowed from buoyant readings in April.

But on the other hand, retail activity, services growth, imports and manufacturing capex actually saw some sequential improvement over the past month.

Hence, there was a rotation of growth drivers in the economy, with the previous laggards of the recovery catching up to the frontrunners. If this continues, it would actually contribute to a more balanced growth profile going forward.

So looking ahead, we think the sequential growth momentum in the Chinese economy is close to peaking in the current quarter and should start to soften over the second half of the year.

This partly reflects our view of weakening external demand as the global recovery starts to benefit services activity over trade of goods. It also reflects our view that the domestic credit condition has deteriorated enough that it would start to weigh on the economy from Q3 onwards.

Policy-wise, we think with the inflation pressure large contained and growth headwinds strengthening, Beijing will likely start to ease the pace of policy normalization to prevent too sharp of a growth slowdown. A redirection of some emphasis away from risk management to growth preservation, is in our view, quite likely over the coming months.

Thank you very much and stay safe.


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