Economic recovery gathers momentum

Healthy quarterly demand for products, loans augurs well for future, say experts

China's economic recovery has gathered momentum since the second quarter of this year with a significant rebound seen in product orders and loan demand, a central bank survey said on Friday.

An index of domestic orders rose to 50.9 percent during the April-to-June period, rising from the record low of 17.4 percent in the first quarter when production was hit by the novel coronavirus outbreak, said a survey of about 5,000 business leaders in the industrial sector, conducted by the People's Bank of China, the central bank.

An index of export orders rose from 19.1 percent to 32 percent during the April-June period, reflecting strong recovery in output with entrepreneurs having a more optimistic economic outlook, according to the PBOC.

Demand for bank loans increased in the second quarter with an index for the same rising to 75.8 percent, up 9.8 percentage points on a quarterly basis, according to another survey released on Friday.

More official economic data are slated to be released in the coming weeks, including the inflation, production and credit figures, and the central bank surveys were in line with economists' estimates that China's economy may post a positive growth and reverse the 6.8 percent contraction seen in the first quarter.

Industrial production growth is likely to edge up, thanks to the domestic policy stimulus, which may offset a relatively weaker export-oriented production. Credit growth may remain elevated due to the central bank's credit easing measures, said Lu Ting, chief economist with Nomura Securities.

A research report from British think tank Oxford Economics said that credit offtake rose at the fastest pace in May since the end of 2017, and this augurs well for economic recovery.

Bank lending, which tends to expand at a relatively steady pace, has gathered speed in recent months. Growth in outstanding bank loans saw 13.2-percent growth on a yearly basis in May, largely due to loans to corporations, especially medium-and long-term loans, said Louis Kuijs, head of Asia Economics at Oxford Economics.

"With stability the key consideration in economic policymaking, concerns about financial instability and too rapid increases in leverage moderate the objective of raising credit growth," said Kuijs.

The PBOC also published the survey results of 20,000 households in urban areas. More participants were willing to increase consumption, while the number of respondents keen on increasing deposits fell amid moderate inflation expectations.

Nearly one-fifth of the respondents planned to increase expenditure on tourism and housing in the next three months, the survey said.

Lu from Nomura Securities expects retail sales growth to improve further in June, reversing the 2.8-percent drop in May from a year earlier, as the gradual recovery in the services sector and solid online sales may more than offset a likely fall in auto sales growth.

"The pace of the consumption recovery should be gradual and shallow, constrained by existing social distancing requirements, impaired household income, and still-elevated uncertainty from remnants of the coronavirus epidemic in China," he said.

Robin Xing, Morgan Stanley chief China economist, said that GDP growth is likely to turn positive at 1.5 percent on a yearly basis in the second quarter, led by industrial and construction sectors, though recovery of some service segments, such as tourism, leisure and personal care, may be more prolonged as virus containment efforts and soft social distancing could be the "new normal" before wide availability of a vaccine.

Growth could accelerate further in the second half and slightly overshoot 6 percent on a yearly basis in the fourth quarter, on the back of policy easing, potential rebound in external demand, broader reopening of the service economy and unleashing of pent-up consumption demand, said Xing.