Strong supply-side performance, weak demand side

CHINA FINANCIAL - Report 29 Jul 2020 by Michael Pettis

Special points to highlight in this issue:

* Since April I have been suggesting that China’s GDP growth rate in 2020 would probably be around 2-3 percent, well above most other estimates. As I expected, second quarter growth was stronger than most other analysts predicted, and I think we will see the same in the third and fourth quarters. I suspect that Beijing has set itself an implicit growth target in this range.

* However, there is a real bifurcation in the economic data. Supply-side data have “surprised” on the upside, and in my opinion they will continue to do so. Demand side data, on the other hand, have been very poor.

* Beijing is aware of this, and once again we are hearing one senior official after another discuss the need to “upgrade consumption” and boost domestic demand – even Xi Jinping has come in on the act. The jury is still out, however, about how effectively Beijing can pull this off.

Now read on...

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