China’s strong GDP rebound allows authorities to contain risks

BEIJING -- China's GDP rebounded sharply by rising 3.2% y/y in Q2, easing growth pressure in H2. To achieve 1.8% y/y 2020 growth, China will only need to reach around 4.5% growth in H2, according to a research note by ANZ Bank.

The recovery in the manufacturing sector was quicker than expected, evidenced by growth of 4.4% y/y in China's industrial production (IP) in Q2, ANZ said. Tertiary industry also rebounded by 1.9% y/y in Q2, after contracting 5.2% in Q1.

"In addition, investment picked up steadily, thanks to a recovery in infrastructure (?2.7% y/y ytd) and property investment (1.9% y/y ytd) in June, compared with ?6.3% and ?0.3% prior."

But despite a drop in unemployment, the rate remains grim as growth momentum may be undermined by labour underutilisation, the bank said.

"As we have highlighted, the 5.7% surveyed jobless rate in June is not the whole picture of China's labour market.

"The number of outward migrant workers reached 177.5 million in Q2, suggesting 5 million migrant workers have not yet returned to the urban labour market.

"Moreover, 7 milllon of 8.74 million graduates are expected to join the labour force in July. This is likely to push the surveyed jobless rate up by 0.5-1.0%.

"So despite regained growth momentum, Chinese policymakers have a long way to go to narrow the output gap."

The research note says continuous policy support is still needed, but China's focus has shifted to containing financial risks.

"The possibility of resurgences in local COVID-19 cases, global economic uncertainty and the deteriorating China-US relationship all pose downside risks to China's H2 growth outlook," ANZ says.

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