China decoupling and “Altasia”

CHINA - Report 30 Mar 2023 by FAN Gang and Chunyang Wang

The economy was still on a recovery track in January-February, but a slow one. Industrial output rose 2.4% y/y, up 1.1 pps from December 2022. The seasonally adjusted m/m growth rate was weak. Investment rose 5.5% y/y, up 0.4 pps from last year, driven mainly by infrastructure investment with a growth rate of 12.2% y/y, and up 1.8 pps from December. But private investment, closely linked to future aggregate investment growth, rose 0.8% y/y, down 10.6 and 0.1 pps from same period last year, and overall last year, respectively.

Manufacturing PMI in February, the non-manufacturing business activity index, and composite PMI reached 52.6%, 56.3% and 56.4%, up 2.5, 1.9, and 3.5 pps from January. All are in an improvement zone, and show that the economy has been expanding.

Retail sales of social consumption goods rose 3.5% in January-February, up 4.6 pps from Q4 2022 and up 5.3 pps from December. Even with all the global PMI above the 50 threshold, indicating strong global demand, exports in dollars and yuan growth rates were -6.8% y/y, and 0.9% y/y, down 13.8 and 9.6 pps from last year. Collapsing exports to the United States are the main factor; exports to other countries have actually improved since the end of 2022.

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