China’s strengthening recovery cements status as global outlier

China’s economic rebound gathered pace in October, cementing the nation’s status as the only major economy tipped to grow this year.

While the U.S. and Europe grapple with a resurgence in coronavirus infections, China’s early control of the pandemic means its economic recovery is expected to accelerate through the end of the year as consumers spend more. An export boom on the back of global demand for medical equipment and work-from-home electronics is also expected to sustain the momentum.

Industrial output rose 6.9% in October from a year earlier, the National Bureau of Statistics said Monday, higher than the 6.7% median estimate in a Bloomberg survey of economists. Retail sales growth accelerated to 4.3% from 3.3% in September, though missing expectations for a 5% increase.

Even with the headline miss on retail sales, a broader recovery in consumer confidence remains underway as evidenced by domestic tourism and spending during the golden week holidays in October, Julia Wang, an executive director and global market strategist at JPMorgan Private Bank, told Bloomberg Television.

“The underlying recovery is still ongoing,” she said. Data from holiday sales, tourism and restaurants “all seem to be supporting this recovery in the consumer sector, which I think by mid-next year should be a much bigger driver of the post-pandemic growth recovery in China.”

Trade will also hold up with both import and export volumes expected to continue outperforming China’s peers despite the faltering global outlook, Fu Linghui, a spokesman for the statistics bureau, told reporters, citing the control of the virus that is allowing China’s factories to produce at full tilt. He expects faster growth overall in the fourth quarter.

Liquidity Support

That recovery is being nursed along by ongoing policy support which was in evidence when the People’s Bank of China on Monday injected more liquidity into the financial system.

Crucially, consumer spending is catching up after a slow start and complementing what has been an industrial-led recovery. Retail spending may also get a boost this month as many shoppers delayed purchases to take advantage of the Singles’ Day shopping festival in November.

Signs of an improving labor market—the surveyed jobless rate fell to 5.3%—will encourage more spending over coming months, according to Citigroup Inc. economists led by Li-gang Liu in Hong Kong. They pointed to catering revenues that rose 0.8% from a year ago, the first increase this year, as a sign of broadening confidence.

“With catering revenue returning to growth, consumer services will likely gain more steam on the expected deployment of Covid-19 vaccines,” they wrote in a note.

To be sure, the consumer rebound has a way to go to reach pre-pandemic levels. In the first 10 months of the year retail sales were still down 5.9% from the same period in 2019 and it remains the weakest part of the recovery story, according to Jingyang Chen, an economist at HSBC Holdings Plc.

“In all, domestic consumption continues its recovery, though a continued improvement in the labor market is still needed to help sustain the momentum,” Chen said.

Virus Cases

Even so, China’s momentum is in contrast to peers including neighboring Japan, where a huge surge in activity over the third quarter is already being tipped to cool as the virus sets new infection records at home and overseas.

That shaky global outlook is one reason why China’s central bank officials have said they won’t be rushed into withdrawing stimulus, even as they may have room to do so. A liquidity injection Monday came as concerns over tighter cash supply sent China’s benchmark sovereign yield to a one-year high last week. Adding to the stress was the default of a coal miner, triggering worries over the health of state-owned firms and their lenders.

“China continues to move closer to its potential growth,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. “As the growth outlook remains positive, the authorities will prioritize reforms over stimulus.”

Copper prices spiked toward $7,200 after the data, with shares of steel, metal and coal businesses rising in mainland China and Hong Kong.

Other key details:

• Fixed-asset investment grew 1.8% in the first 10 months of the year, versus a forecast 1.6% gain
• For a breakdown of manufacturing output, click here