Growth revised lower as property crisis to linger into 2022

Outlook

Disappointing data and the renewed drag from the property crisis has led us to revise lower our GDP estimate for 2021 to 8.0% from 8.3% as we now look for growth of less than 3% annualised in H2. For 2022 we revise down our GDP forecast to 4.5% from 5.0% 5.0%, as we believe the headwind from the property sector will linger for some time. With both consumption, construction and exports looking weak, there are few growth engines left. The government is likely to add some stimulus but given the focus on deleveraging, they are unlikely to step significantly on the gas. Some short term pain for long term gain will be tolerated, in our view.

China today

• Growth. PMIs have continued lower and credit growth remains very weak. Copper prices move sideways still signalling that the global manufacturing cycle is moving lower.

• Inflation. PPI inflation has rebounded but there is still little sign of pass through to CPI inflation, which is below 1%.

• Monetary policy. PBoC cut the RRR rate by 50bp on 9 July and we look for more easing soon. M1 growth remains weak and rising credit yields add new headwind.

• CNY. The yuan has been remarkably stable despite financial stress and overall USD strength.

• Stock markets. Stocks have taken a further hit following the property crisis.

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