Mixed Start Recovery. China’s industrial output grew 3.9 percent in April, compared to a year earlier, reversing March’s 1.1-percent decline and zooming past the 1-percent gain analysts had expected.
At the same time, urban unemployment kept rising, with the official count reaching 6 percent last month, nearing February’s record rate of 6.2 percent. Retail sales were off 7.5 percent year on year, worse than the 7 percent forecast but an improvement over March’s 16-percent plunge.
Although industry is making more goods, Chinese officials are uncertain about when Chinese consumers and the rest of the world’s economy will recover enough to begin buying them again.
Partly as a result, China’s industrial output could shrink again this month, said ING economist Iris Pang. Overseas orders are being canceled and the relationship between the U.S. and China is worsening as the nations trade jabs over the origins of the COVID virus.
Also, consumer spending was restrained during China’s 1 May holiday week, indicating that stagnating incomes and rising unemployment are leaving people sitting on their wallets.
“The recession could be longer than expected,” Pang said.
Chinese leaders have pledged to expand deficit spending and issue more government bonds to aid small businesses.
Exports to Southeast Asia Expand. China’s exports to countries in Southeast Asia rose 8.2 percent in April, following a 15.8-percent drop in the first two months of this year.
The region reported a 3.9-percent boost in purchases beyond its borders for the first four months of 2020.
China also imported 22 percent more iron ore and 14 percent more copper in April, compared to a year earlier. The gains are due to infrastructure projects resuming.
During the same month, trade with the European Union and U.S., which still are largely locked down, sagged 6.6 and 15.5 percent, respectively.
China’s service economy also has yet to recover. Many stores and businesses remain closed and consumers seem reluctant to return to public enclosures for fear the COVID virus might still be lurking.
The weakness is thwarting the Chinese government’s priority of putting people back to work. An internal April report showing the unemployment rate at 21 percent – encompassing about 70 million people – was quashed.
Still, analysts took heart from the export and import numbers.
“China’s economy is still on a downward trend,” said Zhou Hao, a Commerzbank economist, “but we are not seeing a meltdown.”
Internal Travel Returning. China’s national 1 May holiday brought a sharp increase in hotel occupancy rates, with rates almost doubling in some inns compared to just three or four weeks earlier.
Patrons also were returning to restaurants that had reopened.
“The public confidence has rebounded to a reasonable level as Chinese nationals see the government’s ability to bring the virus outbreak under control,” said Jian Chang, an economist at Barclay’s in Hong Kong.
Still, the May Day holiday generated only about 40 percent as much revenue for China’s hospitality sector as it did in 2019. A portion of the loss is likely due to officials’ insistence that public places remain only about half-full.
Reviving tourism is a cornerstone in the country’s plan to transform its economy from one based on government-funded infrastructure projects to one centered in consumerism.
China’s still-weak tourism industry also is battering the U.S., which 2.8 million Chinese visited last year. About 6.8 million Chinese visited Europe in 2018, according to the China Tourism Academy.
“It is highly unlikely that people in China will be ready to travel abroad any time soon,” said UBS economist Tao Wang, “with China severely cutting down international flights.”
TRENDPOST: The less Chinese travel, the lower sales of luxury goods. Chinese customers used to travel to Europe and America to buy designer items at cheaper prices and bring them back, or resell them in China, where the prices for the items are higher.
According to a report by McKinsey & Company, global revenue for the luxury goods market is expected to contract about 35 percent this year compared to 2019.
They estimate some 80 percent of “publicly listed fashion companies in Europe and North America will be in financial distress.”
Auto Sales Perk Up in April. China’s vehicle sales grew 4.4 percent in April, compared to a year previous, the first month since June 2018 that sales grew instead of shrinking.
Although passenger car sales fell 2.6 percent last month, sales of commercial vehicles, such as buses and trucks, soared 32 percent.
After plummeting 42 percent in the first quarter of this year, sales are expected to settle at about 23 million vehicles this year, matching 2013’s level, according to the China Auto Dealers Association, or CADA.
To clear old inventory, dealers are offering 45-percent discounts on Buicks this month and a Chevrolet can be had for a down payment equivalent to $7.75.
Given the uncertain pace of recovery from the economic shutdown, “It is difficult to guarantee positive growth in the coming months,” said Chen Shihua, an executive with the China Association of Automobile Manufacturers.
The world’s vehicle industry had come to depend on China after selling a record 28.9 million vehicles there in 2017. But the market for passenger cars had become saturated in large cities, while stalled economies in smaller cities dashed the hopes of reaching the 30-million mark in 2018.
In 2019, Chinese bought just 25.8 million vehicles.
TREND FORECAST: As reported in Trends Journals over the past year, the auto industry and economies around the world were in slowdown. While auto sales may go up, the rise in auto purchases will be marginal, pushing down prices for both new and used cars. Also, defaults of auto loans will sharply rise.
