China | Worse-than-expected growth exposed the vulnerability of anti-virus strategy

The August real economic indicators further confirmed a continuing deceleration growth amid the recent regulation storms as well as the Delta variant virus flare-ups in mainland China as industrial production, retail sales and fixed asset investment all tumbled.

Key points

• Key points:
• Presumably, the authorities were planning to take the time window of China’s “first-in, first-out” of the pandemic to press ahead structural reforms towards a long-term “common prosperity”.
• However, the ongoing worse-than-expected growth deceleration might force them to re-consider deploying pro-growth measures to balance the growth and reforms.
• Looking ahead, we believe that growth will continue to fall from the previous high readings in the rest of the year, particularly in industrial production, real estate investment and retail sales.
• A number of pro-growth measures are likely to be employed in the coming months, including more targeted loosening measures such as at least one more RRR cut, together with the speed-up of local government bond issuance.
• Chinese authorities need to review their current approach to deal with the Covid-19 virus. As the new Delta variant virus has proved to be highly infectious, the economic cost of implementing the existing “zero case” policy has become increasingly unaffordable.

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