(Bloomberg) -- China’s economy rebounded in February after the long holiday, although early indicators point to an uneven recovery with strong consumption following the scrapping of Covid rules but lagging industrial activity.
That’s according to Bloomberg’s aggregate index of eight early indicators, which showed growth momentum this month maintained the pace seen in January, with the overall gauge staying unchanged at 4. The economy slowed at the end of 2022 as the Covid spread around the country, before beginning to pick up last month.
Private activity looked to be strengthening in February as many residents returned to work after an extended Lunar New Year break, clogging roads in major cities and spending more at restaurants and shops. Meanwhile, the government has removed all movement curbs and declared the pandemic basically over, providing a spur to consumption and travel.
The People’s Bank of China also painted a more optimistic picture of the economy in its latest quarterly monetary policy report, which said the overall economy is likely to rebound this year as production and peoples’ daily lives are normalizing rapidly. The central bank also said that it will guide market rates to move around policy rates.
That provides early hints of a shift toward a neutral monetary policy later this year from the current easing stance, Citigroup Inc economists wrote in a note on Sunday. The improved economic outlook and continued caution about inflation risks also prompted some analysts to lower their expectations for major easing steps such as interest rate cuts in the short term.
Congested Cities
Congestion in major cities last week slowed slightly from the previous week but was still well above the same period last year, according to data compiled by BloombergNEF and Baidu, while the number of people riding the subway in Beijing, Shanghai, Chongqing and other major cities was back to or above pre-pandemic levels. A recent UBS Group AG survey on China consumption showed an increase in dining out, shopping in stores and off-line entertainment.
Small business confidence rose in February to the highest since mid-2022, ending four straight months of contraction, according to Standard Chartered Plc’s survey of more than 500 smaller firms. Expectations picked up broadly and bank credit and liquidity conditions also improved significantly, the firm’s economists Hunter Chan and Ding Shuang wrote in a report.
The improvement was led by an acceleration in services activities, as both performance and expectations sub-indexes picked up after a four-month decline. However, manufacturing performance weakened from January, with soft demand, falling profitability and tight labor supply weighing on companies’ confidence, according to the report.
The recovery speed was different for export-oriented small businesses and domestically-focused ones, with strong local demand suggesting “a solid domestic recovery momentum” while exports were weak, they wrote.
Early trade data from South Korea showed the recent decline in in global demand continued, as average daily shipments declined by a bigger magnitude in the first 20 days of February compared to the same period of January. Russia’s war in Ukraine, central bank tightening and sliding semiconductor demand all added to the cloudy outlook for the global economy.
At home, property sales continued to plunge in the first three weeks of the month, even as central and local governments try to arrest the slide in prices and construction that have decimated the sector. Those efforts include moving away from rules restricting land sales by local governments and launching a pilot program for real estate private equity investment funds, as well as relaxing rules limiting home purchase this month in an effort to prop up the market.
Car sales showed little signs of picking up following a 38% year-on-year drop in January, with the weak demand partly due to the scrapping of a national subsidy for electric vehicle purchases.
That decline in housing has hit demand for steel, cement and other goods. Steel output is flat this year while stockpiles have risen, according to data from the Iron and Steel Association. However, demand for some other commodities like oil and copper is starting to pick up. Power demand has also started rising after the holidays, with the amount of coal burnt for electricity production exceeding the level in the same period in 2022.
Early Indicators
Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.
- Major onshore stocks - CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on the 25th of the month).
- Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
- Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand.
- Copper prices - Spot price for refined copper in Shanghai market (yuan/metric ton).
- South Korean exports - South Korean exports in the first 20 days of each month (year-on-year change).
- Factory inflation tracker - Bloomberg Economics-created tracker for Chinese producer prices (year-on-year change).
- Small and medium-sized business confidence - Survey of companies conducted by Standard Chartered.
- Passenger car sales - Monthly result calculated from the weekly average sales data released by the China Passenger Car Association.
--With assistance from Yujing Liu.
(Updates with details from PBOC report in fourth and fifth paragraphs.)
©2023 Bloomberg L.P.
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