China | Regulatory storms, Delta variant flare-ups and growth deceleration

Summary

The July real economic indicators further confirmed a continuing moderated growth momentum amid the recent regulation storms as well as the Delta variant virus flare-ups in mainland China.

Key points

• Key points:
• Industrial production, retail sales and fixed asset investment all registered a decelerating year on year and month on month growth from the previous month’s readings.
• The authorities were trying to take the time window of China’s “first-in, first-out” of the pandemic to press ahead structural reforms and regulation tightening to pursue long-term equality and common prosperity, but the growth deceleration seems worse-than-expected.
• The moderate growth and financial market turmoil call for more easing measures in the coming months, so that we expect more targeted easing and liquidity management tools such as RRR cut will be implemented.
• Is the current situation too much worrisome and is there any systematic risk on the way? Simply speaking, the answer is no for both questions.
• We maintain our 2021 GDP forecast at 8.2% y/y, which is way above the conservative official target of 6% announced in the “two sessions” this year, but lower than the market consensus of 8.5% and IMF’s 8.4%.

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