China’s Economy Improves in June From Lockdown-Induced Slump

The Chinese economy showed some improvement in June as Covid restrictions were gradually relaxed.

The outlook is based on eight early indicators for this month. After two months of decline, the gauge returned to neutral.

Businesses were able to restart and most residents left their homes after the financial hub of Shanghai lifted its lock down. Small business confidence rebounded after contracting for two months.

A survey of more than 500 smaller firms showed that demand and production recovered strongly among manufacturing, and that export oriented smaller firms performed better than their larger counterparts.

The manufacturing recovery was more important than the services. Retail and Catering were drags, while real estate, transport and information technology reported an increase in activity.

Demand for some building materials isn't rising because of rising activity In the month of June, inventory levels at major Chinese steel mills have increased by more than 80% compared to the beginning of the year. In June, there was a slight increase in the stocks of steel Rebar.

China will strive to meet its goals for the year, with Beijing promising to increase policy measures to support growth. The stock market was up for a fourth week in a row on optimism of the government's policies.

The housing sector drags on the economy. In the top four cities in China, property sales fell in the first three weeks of June, even though sales in Shanghai rebounded last week

Since China created a private property market in the 1990's, an official index that tracks apartment and home sales has declined for 11 months in a row. Weekly sales in the top 50 cities fell from a year ago.

China's property slump is a bigger threat than its lock downs.

The car market is slowly returning to normal. In the first two weeks of June, more cars were sold than in the same period in the previous year. In the past three months, Covid restrictions caused car plants and dealerships to shut and prevented people from leaving their homes to shop.

The economies of Beijing and Shanghai were hardest hit by the retail sales decline.

It will take longer for the services industry to recover. Consumers are still unwilling or unable to go out as much as before since China's strict Covid Zero policy means they face beingQuarantined for weeks if they've been in the same location as a positive case

Even if they weren't locked down, the restrictions and factory closings have curbed the incomes of businesses and workers.

Beijing's economy struggled in May even without a lockdown.

In June, the export sector likely supported demand as companies increased shipments that had been delayed and ports worked to clear the containers. South Korean exports in the first 20 days of the month fell for the first time in more than a year due to fewer working days this year

The average daily value of Korean shipments went up in the last year. China's strong growth continues despite predictions that it would slow or fall, as exports have been a strong driver of the economy.

The metals haven't crashed this hard since the Great Recession.

If concerns about a global recession are correct, the outlook for those shipments in the rest of this year could be different. The price of copper had its biggest weekly loss in a year last week as the outlook for demand and commodities deteriorated. The metal used in wires and cables extended its weekly loss to 7%, hitting the lowest level since February last year, after disappointing US business activity data that included an abrupt cooling in manufacturing.

Early Indicators

A weighted average of the monthly changes of eight indicators is used to generate the activity reading.

• Major onshore stocks - CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on 25th of the month).
• Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
• Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand.
• Copper prices - Spot price for refined copper in Shanghai market (yuan/metric ton).
• South Korean exports - South Korean exports in the first 20 days of each month (year-on-year change).
• Factory inflation tracker - Bloomberg Economics-created tracker for Chinese producer prices (year-on-year change).
• Small and medium-sized business confidence - Survey of companies conducted by Standard Chartered.
• Passenger car sales - Monthly result calculated from the weekly average sales data released by the China Passenger Car Association.

James Mayger helped with the project.