Economy and trade

Headline data

China’s economic activity appears to be accelerating again in Q3 after a relatively flat previous quarter. This has led to economic consultancies slightly raising their GDP growth forecasts for 2020. For example, the Economist Intelligence Unit (EIU) is now forecasting 1.7%. Whilst this is still significantly lower than the level of growth China has experienced in recent years, it is still higher than early forecasts of real GDP growth perhaps falling to as low as 1%.

These levels of projected economic growth reflect the continuing challenge of getting businesses back to full operation, the fall in Chinese exports and domestic consumption across Q1 to Q2, and the anticipated ongoing fall in global demand as COVID-19 outbreaks continue around the world during Q3.

COVID-19 has had wide-ranging impact across China's economy:

  • The service sector, especially consumer industries such as tourism, catering, and entertainment – although these sectors are improving

  • The manufacturing sector, typically due to disrupted global supply chains, and softer global demand

  • The trade sector, due to the reductions and cancellations of flights, and sea routes and borders restrictions

Analysis by Trivium China's National Business Activity Index indicates that the Chinese economy was operating at 90% of normal output as of early June, and should remain at least at that level during August. It is clear that significant progress has been made to getting back to full operation, but full capacity utilisation is still being held back somewhat by external demand and supply chain constraints.

Key economic indicators have improved in recent months and suggest that the economy has been moving along two tracks:

  1. The production side, which is easier for the government to stimulate, and was boosted by export growth, moved into positive territory. Fixed asset investment also improved – in part linked to improvement in the property and construction sectors.

  2. In contrast, the consumption side has been slower to recover. Retail sales have been sluggish, indicating that it is still proving much more difficult to get consumers to spend. In addition, the cautious approach that continues for public health measures for transportation, retail and recreation through Q2 and into Q3 has an impact on activity. The Economist Intelligence Unit (EIU) is forecasting that retail sales will decline 8% during 2020.

At this stage it does look like industrial production is following somewhat of a v-shaped recovery, whereas consumption is more u-shaped in terms of its recovery trend.

  • Industrial value-added output: +4.8% YoY (May)

  • Retail sales: -1.1% YoY (July)

  • Online retail sales: +7.3% YoY (June)

  • Catering sales: -11% YoY (June)

  • Fixed asset investment: +8.3% YoY (July)

  • Unemployment rate: currently 5.9% (but excludes SME data)

  • Construction starts: +11.3% YoY (July)

  • Property sales: +9.5% YoY (July)

  • Export growth: +10.4% (July)

  • CPI: +2.7% (July)

China's Purchasing Manager Index (PMI) continued to improve in July to 51.1 (from 50.8 in June). A reading of 50 or greater indicates a growth in factory output and improved business confidence. The PMI has been as low as 35.7 in February.


In August, a survey of 4,400 companies by the China Enterprise Reform Development Society highlighted that more than half of these firms stated that consumer demand was still running below pre-pandemic levels.

The trend to purchase more grocery items through online platforms is taking root, and fresh food is actually the fastest growing category for Similarly, there has been a growth in the purchase of items such as utensils and appliances, and even imported wine, through online platforms. This fits with the “home body” trend that has been emerging since the initial outbreak of COVID-19. Consumers are also focusing on buying for better value and buying more premium. Across the 18 days of the 618 Shopping Festival in June, consumers spent massive amounts through China’s ecommerce platforms. For example, and Alibaba both recorded large increases in sales – up 34% to RMB 269 billion (NZ$59 billion) in gross merchandise value (GMV) and Alibaba selling RMB 698 billion (NZ$166 billion, GMV). Sales were in part driven by discounting and consumption vouchers.

Advice to exporters

Recent economic data supports feedback from businesses on-the-ground in China that market conditions are improving. This reflects the progress made in companies getting back to a higher level of operation, and the winding back of restrictions people have faced in their movement and daily lives. For example, Beijing has eased its guidance in late August on people needing to wear masks outdoors.

However, it does also need to be acknowledged that Chinese companies in the trading sector have been impacted by global supply chain disruption and lower international demand, depending on the sector and markets in which they operate. Chinese consumers also remain cautious. SMEs in particular may still be under pressure in the current economic environment, especially if exposed to sectors such as physical retail or catering services. It is recommended that New Zealand exporters carefully watch credit extended and any risks that may emerge around delayed payments.

It remains important for exporters to actively communicate with their supply chain and distribution partners in order to get clarity around their own situation, and to determine how to work with partners to retain existing market share, capture new demand or recover pricing. Triangulating market information received is also good practice.

An example of a specific trend exporters should get across is the expansion of e-commerce consumption into the older demographic grouping, which is likely to last well beyond the pandemic and the potential for Chinese consumers to favour local brands during their recovery.

Companies should also focus beyond Tier 1 and Tier 2 cities and continue to build their strategy for reach Tier 3 and beyond.

Examples of sectors that could potentially rebound more quickly during a market recovery are:

  • Food and beverage (as supply from other countries into China is disrupted)

  • Health and nutritional products

  • Online entertainment

  • Online education.

Further insights

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