China’s sluggish economic recovery calls for additional stimulus — Charts of the Week

Understanding China's May economic situation in 8 charts

Economic data highlight: sluggish economic recovery calls for additional stimulus

• China's manufacturing activities were measured differently in May. The official manufacturing PMI, published by the National Bureau of Statistics, declined to 48.8 from 49.2 in April. However, the Caixin manufacturing PMI increased to 50.9 from 49.5 in April. The divergent results have important implications for China's economic situation. (Read our previous analysis for more perspectives:

  https://www.baiguan.news/p/decoding-chinas-worrisome-may-pmi)

• In May, exports dropped more than estimated, falling by 7.5% year-on-year and returning to a contracting region after two months of growth in March and April. Imports fell by 4.5% year-on-year.

• In May, credit demand increased but fell short of the consensus. Total social financing rose to 1.56 trillion CNY, up from 1.22 trillion in April, but lower than the 2.84 trillion recorded in May 2022. New Yuan loans increased to 1.36 trillion CNY from 0.72 trillion in April but were lower than the 1.89 trillion recorded in May 2022.

Datapoints covered in this issue:

• Offline catering revenue and breakdown by city tier

• Online consumption and breakdown by discretionary vs staples

• Automobile

• Real estate: property showing, transaction volume (units)

• Employment outlook: job posting

The Chinese yuan (CNY) continues to weaken amid rate cuts

On June 13, the People's Bank of China (PBOC) announced a 10 basis point cut in the borrowing rates of the Standing Lending Facilities (SLF) across all tenors. This is the first adjustment since August 2022. Following this, the PBOC has lowered the 7-day reverse repo rates by 10 basis points to 1.9% and the Medium-term Lending Facility (MLF) rate by 10 basis points to 2.65%.

This rate cut aims to boost market confidence amid weakening credit demand and investor sentiment. It is widely expected that the loan prime rate (LPR), which is used to set consumer loan and mortgage rates, will also be lowered. (Based on previous LPR adjustments, every time the MLF interest rate was lowered, the LPR was subsequently lowered as well). [source].

Further interest rate cuts in China may widen the yield gap with the United States, further putting downward pressure on the yuan.

(1$=7.1249 CNY at the time of writing, Jun 18)

Domestic consumption: an inflection point for discretionary spending?