Chinese Economy on Track?

The Chinese economy is back into highlight given multiple headwinds to the economy. First, the devasting floods are affecting some parts of the local economy. Second, the resurgence of Covid-19 presented stress to the service sector, and the shipping lines and the general slowdown in economic growth are putting pressure for more stimulus measures.

Of course, the ongoing crackdown on business has put investors on the toes for what’s to come next.

Economic Data Presents Weakness

The retail sales rose by 8.5% last month compared to a year ago. This missed the analyst’s estimate, which has a forecast of 11 to 12%. We also see weakness in the online sales of physical consumer goods, which rose 4.4%, typically growing by double-digits figures.

Next, vehicles sales were uninspiring as they fell in July, the third straight month of moderation based on China’s National Bureau of Statistics. One can point to the supply constraints of semiconductor chips, and there is a strong belief for such a trend to persist.

Consumers Spending is Slowing

The consumer telecom equipment sales that include cell phone items also registered flat growth compared to 16% seen in June. A key reason is the floods in Zhengzhou, a provincial capital, which is a crucial hub for producing smartphones and semiconductor chips.

Cosmetic sales had a lousy month, too, as it grew just 2.8% in July compared to a year ago. So are people working from home causing a reduction in the use of cosmetics?

Then the urban unemployment rate rose marginally from 5% in June to 5.1% in July. However, underlying the data reveals a more worrying sign as the figure is about three times more for younger workers and is still on an ascending trend. Pika World has plenty to worry about this group of burgeoning youthful population that supports a high consumption modern economy of China.

There are bright Sparks

While traditional auto sales have fallen, new energy vehicles are gaining popularity and weathering the headwinds as sales double in July compared to a year ago. We also see firm spending in medicines and home electronics, which could be a beneficiary in the current pandemic, even during the recovery phase.

Next, we see successful control of Covid cases after spiking in mid-July. We also witness surprising positive domestic vaccine results based on late-stage trial data released by Chongqing Zhifei Biological Products that presents about 82% efficacy against Covid-9 cases and 77.5% preliminary efficacy against the Delta variant.

On an overall scale, we see promising signs in remote office needs, trendy goods, sports and healthcare, and even sales in high-end clothing boutiques have satisfying results. As consumers become more mature, they are also more selective in spending on brands that promote sustainable development.

And if there is a good catch, Pika World thinks these sectors, including those of a defensive sector such as F&B and traditional retail industries, could be a good resting point for the near term.

What’s on the Menu Today?

At 10 pm, we will receive the Pending Home Sales, which we expect to climb 0.4% compared to a deceleration of 1.9% based on an m-o-m basis.

It is 30 August, Monday, at 8 am in Singapore and 8 pm in New York. Pika World wishes all friends an energetic week.