China economic recovery on fast track as factory activity revives

China’s economic recovery stepped up in the third quarter as industrial activity revived thanks to the stimulus provided by the government. The consumers returned to shopping malls and major trading partners reopened for business, shaking off the record slump seen earlier this year.

The world’s second-largest economy is expected to have grown 5.2% in July-September from a year earlier, faster than the second quarter’s 3.2%, according to a Reuters poll.

Foreign direct investment (FDI) into China jumped 25.1% in September from a year earlier, to 99.03 billion yuan ($14.79 billion), the commerce ministry said on Friday. In the January-September period, FDI rose 5.2% year on year to 718.81 billion yuan.

Policymakers globally are pinning their hopes on a robust recovery in China to help restart demand as economies struggle with heavy lockdowns and a second wave of coronavirus infections.

“China has become the first major economy to return to its pre-virus growth path, thanks to its rapid containment of COVID-19 and effective stimulus response,” said analysts from Capital Economics. However, they warned a renewed slowdown is likely from late 2021 as stimulus fades.

China’s retail spending has lagged the comeback in factory activity as heavy job losses and persistent worries about infection kept consumers at home, even as restrictions lifted. However, that is expected to have changed in the third quarter.

In September, auto sales marked a sixth straight month of gains with a solid 12.8% growth. Ford Motor Co’s China vehicle sales jumped 25% in the September quarter from a year earlier.

Domestic passenger flights in September, meanwhile, beat their COVID-19 levels, indicating that sector was approaching a full recovery.

The COVID-19 pandemic, which caused China’s first contraction since at least 1992 in the first quarter, is now largely under control, although there has been a small resurgence of cases in the eastern province of Shandong.

Year-on-year forecasts by 51 analysts polled by Reuters ranged from 2.5% to 7.2%.

On a quarterly basis, GDP is expected to have grown 3.2% in July-September compared with a rise of 11.5% in the previous quarter.

The government has rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements to revive the virus-hit economy and support employment.

China releases third-quarter GDP data on Monday, along with September factory output, retail sales and fixed-asset investment.

Analysts polled by Reuters expect industrial output to grow 5.8% in September from a year earlier, quickening from a 5.6% rise in August, while retail sales were seen rising 1.8%, versus a 0.5% rise in August.

While the central bank stepped up policy support earlier this year after widespread travel restrictions choked economic activity, it has more recently held off on further easing.

“Because of the ongoing growth recovery but still strong headwinds, we expect Beijing to maintain its ‘wait-and-see’ policy approach through the remainder of this year,” said analysts at Nomura in a note this week.

The International Monetary Fund (IMF) has forecast an expansion of 1.9% for China for the full year, the only major economy expected to report growth in 2020.

Meanwhile, China’s new bank loans grew more than expected in September fuelled by a jump in corporate loans as the economy continued to recover from its coronavirus-induced slump.

Lenders issued 1.9 trillion yuan ($282.3 billion) in new yuan loans, data from the People’s Bank of China showed on Wednesday, up 48.4% from August and exceeding analysts’ expectations.

That pushed bank lending in the first nine months of this year to 16.26 trillion yuan, beating a previous peak of 13.63 trillion yuan in the first three quarters of 2019.

Analysts polled by Reuters had predicted new loans would rise to 1.7 trillion yuan from 1.28 trillion yuan the previous month.

Household loans, mostly mortgages, rose to 960.7 billion yuan from 841.5 billion yuan in August, while corporate loans jumped to 945.8 billion yuan from 579.7 billion yuan, according to Reuters calculations based on the data.

The strong appetite for corporate loans is in line with recent data showing robust import and export growth in September.

While the central bank stepped up policy support earlier this year after widespread travel restrictions choked economic activity, it has more recently held off on further easing.

The authorities should allow the macro-leverage ratio to rise temporarily due to efforts to boost credit support to the economy hit by the pandemic, Ruan Jianhong, an official with the PBOC, told a news conference.

Reuters