China: Q1 Data and Beyond

Published on April 13, 2020

On Friday, April 17, 10 a.m. Beijing time, China’s National Bureau of Statistics will release major economic data for Q1 and March of 2020.

Reflecting an enormously volatile period of COVID-19 turmoil and lockdown, this official – and particularly politically loaded — series may be met with an even larger than usual dose of skepticism by markets. With China a half-cycle ahead of the United States on the arc of the virus crisis, the numbers will be closely watched regardless, especially for any signs of stabilization in the last month of the quarter.

** As per standard protocol, last week, on April 8, nine economic departments submitted individual GDP estimates to the Central Financial and Economic Affairs Commission and to the State Council. From what we understand, these estimates ranged from a negative 3.5% growth rate for the quarter to a low submission of negative 6.9% — the first quarterly negative growth rates on record since China’s “Reform and Opening” of 1978.

** Among the departments, the NDRC (National Development and Reform Commission), it appears, pegged the Q1 GDP growth number at negative 4.7% year on year, which we expect means will be around where the final number is most likely to come out. Looking ahead, the NDRC sees a GDP rebound for Q2 in the range of 4.5-5.5%, 6.0-6.8% for Q3, and 6.4-7.5% for Q4 of 2020 — some might say rather optimistically.

** But clearly, in a classic understatement, a senior source concedes that reaching the GDP growth target of around 6% this year as originally set by the Central Economic Work Conference will be “hard to achieve.” More telling, with the COVID crisis throwing the economy in a tailspin, it has been suggested to the State Council that a GDP growth target not even be set for 2020.  Nevertheless, forecasts and forecasters being what they are, Chinese official sources believe 4% GDP may be a reasonable approximation for 2020 when all is said and done.

** Beijing also reports somewhat implausibly, if we can be forgiven for a rare editorial interjection, that as of April 6, 98.7% of major industrial enterprises were near full production, even while conceding that Small and Medium Enterprises were still facing considerable headwinds in returning to work. With the latter in mind, government forecasters believe the first half of 2020, even with a Q2 bounce, will essentially register zero, or even negative growth.

** As to the global outlook, the NDRC sees a severe global recession through the first half — at least – of 2020, with the impact of the COVID-19 crisis exceeding that of the global financial crisis of 2008. While global financial policymakers continue to distinguish this “main street” crisis from a financial crisis, China’s lead economic planning agency expects economic weakness to spread to the global financial system over the coming months, despite all the best efforts of monetary and fiscal authorities.

It would appear a challenge to square that more dire prognosis for the global economy with expectations for a strong second half rebound for China’s domestic economy — but time will tell.

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