Treat recovery data with caution

CHINA - Report 28 Feb 2023 by FAN Gang and Chunyang Wang

Because of Chinese New Year, the statistics bureau didn’t announce price, financial and PMI data until February. China switched from zero-COVID lockdown to almost no restrictions in December 2022, and by January 2023, normal life had nearly returned. The economy is generally improving, but caution about its sustainability is required.

Manufacturing PMI, the non-manufacturing business index and the composite PMI production index were 50.1%, 54.4%, and 52.9% in January 2023, up 3.1, 12.8, and 10.3 pps from December. All rose to the improvement zone, showing that the economy is recovering. Our in-depth analysis instead shows that the improvement is still mainly from infrastructure investment. Our survey data shows most industries and firms are only the same or in slightly better shape than in January 2022 -- not a big jump from the zero-COVID policy period.

In January 2023, PPI fell -0.4% m/m, growing -0.8%, down 0.1 pps, largely because of falling oil and coal prices. CPI mildly increased. CPI rose 2.1% y/y in January, up 0.3 pps from December 2022. The rise is from demand release after pandemic control relaxation and the New Year’s holiday effect.

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