China: Four takeaways from first four months – Hitting the great wall

We have said activity data would slow sequentially from Q1. Four months into the reopening, China’s economic recovery can best be described as uneven, frontloaded, and still necessarily state-supported.

While April activity (predictably) came off from very strong March prints, it continued to show stark divergence between services and manufacturing. Credit, production, and investments data disappointed even our conservative estimates. Manufacturing weakness in particular can no longer be simply attributed to softness in exports.

In this note, we take stock of China’s recovery so far and draw four key observations:

1. Big misses outside of services will now raise questions as to the underlying growth momentum beyond a mechanical reopening bounce
2. Even with easing measures, it’s too early to assume the property cycle has turned
3. Credit growth is now less of an upside risk to our forecasts
4. Market fears of policy tightening have turned to easing hopes in recent weeks – but policymakers will only do so selectively