A robust recovery
The stock market, FDI and foreign reserves have all returned to pre-pandemic levels, while the fiscal budget deficit has expanded further. Fiscal revenue fell -6.4% y/y in Q3, and expenditure was down -1.9% y/y.
Despite the global pandemic, and the still ongoing U.S.-China trade war, exports are surging, and rose 10.2% y/y, up 5.7 pps from Q2, and up 6.3 pps from Q3 2019. The Chinese share of world exports also climbed, to 20%, from 13.1% in 2019, and 12.8% in 2018. Specifically, exports to the United States rose 19.2% y/y. Imports increased 4.3% y/y, up 10.1 pps from Q2.
As of November 4th, the RMB had appreciated 6.7% from its value at the end of May. But the magnitude is still too small to have sizable impacts on trade. The export surge can be attributed to China’s good pandemic control, and to its economy’s high resilience. Based on these two factors, we expect exports will remain in good shape in the near future.
Cross-border RMB receipts and payments totaled 12.67 trillion yuan, up 36.33% y/y. We expect the RMB will further strengthen in the rest of the year, given the Chinese economy’s much better comeback compared to the United States, the large interest rate differential between the United States and China, and the U.S. dollar flooding into the market. Even though the RMB cannot overtake the dollar in the international market in the near future, the outlook for the Chinese currency is promising.
GDP was up 4.9% y/y in Q3, a rise of 1.7 pps from Q2, but still 1.1 pps lower than in Q3 2019. Investment was up 8.8% y/y, up 5 pps from Q2, and up 4.1 pps from Q3 2019, with investment in manufacturing rising fastest, by 9% y/y, up 10 pps from Q2. Retail sales of social consumption goods were up 0.9% y/y, and up 4.8 pps from Q2 -- and their real growth rate was -0.4% y/y.
CPI was up 2.3% y/y in Q3, down 0.4 pps from Q2. In particular, CPI rose only 1.7% y/y in September, an accelerated decrease. Producer prices fell less. The ex-factory price index of industrial goods fell -2.2% y/y, up 0.9 pps from Q2. PPI rose 1.2% m/m. It fell -2.7% y/y, up 1.7 pps from Q2.
The societal financing scale increased 46% y/y, driven by booming government bond issuance. The main financial indicators have stable or slightly increasing growth rates. At the end of Q3, M2 was up 10.9% y/y, down 0.3 pps from June. Household savings rose 13.9% y/y, down 0.4 pps from June. M1 was up 8.1% y/y, up 1.7 pps from June.
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