Recovery again constrained by COVID

CHINA - Report 25 Nov 2022 by FAN Gang and Chunyang Wang

Growth is weakly recovering, with pressure ahead largely due to COVID prevention measures and related lockdowns. Although rumors have suggested that the zero-COVID policy could be abandoned, there were also signs that China would commit to this policy in the short term, citing reasons in state media that China’s per-capita medical resources are low. We forecast that, although there might be some relaxing adjustment -- for example, reducing quarantines for those entering the country from abroad to five days from seven -- the zero-COVID policy will not be abandoned soon.

Industrial output rose 4% y/y in January-October, continuing its weak recovery since May. Investment rose 5.8% y/y, down 0.1 pps from first three quarters. China’s PMI, manufacturing PMI and non-manufacturing business activity index were 49%, 49.2%, and 48.7% respectively, down 1.9 pps, 0.9 pps, and 1.9 pps from September.

Retail sales of social consumption goods fell -0.5% y/y, down 3 pps from September. Exports in October rose 7% y/y, down 3.7 pps from September. The global weakening demand is the main reason behind slower exports, and very likely to persist in the medium term.

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