- “We already have monetary stimulus, but it just doesn’t work,” according to US-based China Beige Book.
- Still, China Beige Book thinks China’s second-quarter year-on-year growth is likely to be stronger than the first quarter, echoing comments made by Chinese Premier Li Qiang earlier this week.
- According to the private survey, China’s top cities are leading the country’s economic recovery.
According to a private survey of more than 4,600 respondents conducted by China Beige Book between mid-April and mid-April 2023, China’s economy is likely to have recovered in the second quarter.
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China’s monetary stimulus over the past year did little to boost credit demand in the second quarter — even if borrowing costs for firms were lower than a year ago, according to a China Beige Book survey released on Friday.
This suggests that the People’s Bank of China’s interest rate cuts in August may have had a limited impact on growth and raises doubts as to whether the latest round of interest rate cuts in mid-June will take effect.
“For months, analysts have been touting the idea that Beijing has no choice but to massively ease monetary policy,” said Leland Miller, executive director of China Beige Book. “The PBoC started its push a few months ago and the thread hasn’t moved.”
China’s recovery in 2023 is not steep, but it’s not over yet either.
Shehzad Qazi
Managing Director, China Beige Book
The report states: “We already have monetary stimulus, but it just doesn’t work.”
Softer-than-expected economic growth in April and May has fueled calls for more decisive monetary policy action to support growth in the world’s second largest economy as the much-anticipated recovery from the coronavirus crisis disappointed.
Major Wall Street banks — from Goldman Sachs and Bank of America to UBS and Nomura — recently lowered their growth forecasts for China.
China Beige Book found in its latest quarterly survey that government debt in the world’s second-largest economy has fallen to its lowest level since data began being collected in 2010.
It also turned out that the pent-up demand for credit was even weaker than in the previous year.
China Beige Book pointed out that China’s real estate sector has been enjoying more favorable credit conditions for months, but residential real estate reported monthly and annual declines in sales and prices.
Still, the US company expects growth in China to be stronger in the second quarter than in the first, as data showed that manufacturing, retail and services saw sales increase quarter-on-quarter. The optimism was echoed by Chinese Premier Li Qiang earlier this week.
The China Beige Book survey was conducted by 4,604 respondents in China over two periods: mid-April and mid-May to mid-June.
The report provides a first look at the state of China’s economy ahead of a series of official government data expected to be released in mid-July.
“Markets have replaced hopes of a consumption-led recovery with an economic recovery, but June data show consumer spending is still rising,” said Shehzad Qazi, chief executive of China Beige Book.
“Retail receipts have increased, spending on travel and hotels is nowhere near declining and manufacturing receipts have risen for the third straight month,” he added.
“China’s upswing in 2023 is not strong, but it is not yet complete.”
With the population’s greater affluence and greater purchasing power, China’s economic recovery will be largely driven by its world-class cities, China Beige Book said.
Even then, there are challenges that survey participants pointed out: weak prices while working to maintain global market share in a global economic downturn.
If you think the economy is terrible when it isn’t, expect big stimulus to come when it isn’t.
Derek Scissors
Chief Economist, China Beige Book
This was no doubt exacerbated by the weakening Chinese yuan, which hit an eight-month low against the US dollar this week.
Market expectations of an economic recovery may have been overly optimistic — just as current market pessimism about China may be overdone, China Beige Book said.
“China’s story in the second quarter is one of mistake begets mistake,” said Derek Scissors, chief economist at China Beige Book.
“If you think the economy is terrible when it’s not, you can expect big stimulus to come when it’s not,” he added.
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