China’s recovery gathers pace in November, setting up strong growth for 2021

China's industrial output rose 7% in November from a year earlier, and retail sales expanded 5%. The data shows the breadth of the recovery since a contraction in output in Q1.

Workers at a factory in Jining, China | Representational image | Photo: Qilai Shen | Bloomberg

China’s recovery gathered momentum in November, supported by strong demand from home and abroad, putting the economy further ahead of its peers as the only major one likely to expand this year.

• Industrial output rose 7% in November from a year earlier, in line with the median estimate in a Bloomberg survey of economists. Retail sales expanded 5% in the period, as projected. Fixed-asset investment grew 2.6% in the first 11 months of the year from the same period in 2019, also as expected
• The unemployment rate inched lower to 5.2% from 5.3%

Key Insights

• The data shows the breadth of the recovery since a contraction in output in the first quarter triggered by the coronavirus pandemic. An industrial-led rebound has been followed by a pickup in consumer spending. Exports have rocketed in recent months as a return to virus restrictions in many of China’s biggest markets fueled demand for medical equipment and work-from-home electronic devices
• Retail sales were likely boosted by the ‘Singles’ Day’ shopping festival on Nov. 11, signaling solid demand. For the first 11 months of the year, sales were still down 4.8% compared with the same period in 2019
• The profitability of industrial firms has rebounded, although some companies are struggling under large debt loads. A series of recent defaults by state-owned enterprises roiled local debt markets and is making it harder for some to borrow money
• The data points to fourth quarter growth that’s likely to be better than the previous three months, Fu Linghui, a spokesman for the National Bureau of Statistics, told reporters in Beijing. The retail recovery is on track and consumption will remain the main growth engine, he said. He also projected “relatively fast” expansion in 2021
• Economists surveyed by Bloomberg predict growth will accelerate to 5.9% in the current quarter and reach 2% for the full year
• The data confirms the view that China’s recovery accelerated in the final quarter of the year, Liu Li-gang, chief China economist at Citigroup Inc. said in an interview on Bloomberg TV, predicting growth of 5.9% in the quarter. The recovery though has been unbalanced, with industrial production rebounding “extremely fast,” while domestic demand, as reflected by retail sales, remaining “quite sluggish.” Liu said he expects a cyclical rebound in consumption next year
• The improvement in industrial production was “underpinned by robust domestic demand and very strong exports,” Louis Kuijs from Oxford Economics wrote in an email. “We expect the macro policy stance to shift from expansionary to contractionary, with the overall government deficit declining and monetary policy makers aiming to contain macro leverage.”

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• Investment continues to be fueled by state-owned businesses, which grew 5.6% in the January-November period from a year ago. Fixed-asset investment by private companies gained 0.2% in the period, the first time it was positive this year
• For a breakdown of manufacturing growth
• The central bank continued to provide ample liquidity to support the recovery, injecting 950 billion yuan ($145 billion) of one-year cash via the medium-term lending facility on Tuesday, more than offsetting the 600 billion yuan that matures in December

What Bloomberg Economics Says…

• The solid activity reduces the need for the People’s Bank of China to cut interest rates in the near term, but it doesn’t mean the PBOC will be able to withdraw policy support quickly. We expect the central bank to take steps to smooth corporate funding as it begins the long process of policy normalization.
• The retail sales figures boosted sentiment among consumer stocks. The MSCI China Consumer Staples Index reversed an earlier decline to gain 0.4%- Bloomberg