00:00Let's start with the second quarter GDP numbers here. So we're talking about 4.3%
00:04for the second quarter. That is a miss on estimates there, and it is short of that target,
00:10really, of the year end target, I should say, of 4.5% to 5%. Retail sales, though, this one
00:16seems
00:16to be a bit of a surprise to the upside. We're talking about 1% gains for retail sales. The
00:21street was expecting a median estimate of negative 0.1%, so that's a massive beat there.
00:26What else do you see, Dave? Yeah, so just the 4.3% in context, so it's clearly below the
00:33median
00:33of 4.5%. Across the range of forecasts from the street, it actually came in below almost
00:41every single forecast, with the exception of, I'm counting three economists here, so clearly
00:47on the low end of expectations here. This is, of course, for the quarter. Backward-looking,
00:53of course, statisticians will need this, of course, to calculate what the base looks like
00:56and what the base should be going into the second half of the year, but to Yvonne's point
01:00on the monthly data, perhaps more on the encouraging side, right? So IP, 5.3%, better than estimates,
01:09that's factory output. Retail sales, Yvonne talked about that. We are getting a flip back
01:14into positive territory, and I put this against the backdrop of the home price numbers 30 minutes
01:17back, which actually showed a lesser decline on new home prices on aggregate. So just looking
01:24at what else, jobless rate coming in at 5%. Also a tick lower. Also a tick lower there.
01:29What else are you tracking? Property investment continues to be a negative story, right? We're
01:34talking about losses of 18%, so that is also worse than what was expected. Year-to-date.
01:40Year-to-date, I should say, from what the median estimates are. So that certainly is what we're
01:44seeing. It's a mixed bag, but for the most part, there have been some surprises to the upside
01:50here as well. Let's bring in Zhang Jui, President and Chief Economist at Pinpoint Asset Management.
01:53So I think April and May was quite soft. What's your take on the June numbers?
01:58I would say take a look at the whole set of data. It's not perfect, but it's okay, I would
02:03say. If I were in Beijing as a policymaker looking at this set of data, I would say there's
02:08some slowdown in the economy, but they are still on track to deliver the growth target
02:14for this year. Because the first quarter, they achieved 5%. Second quarter, 4.3%. Combined
02:20together, they are still kind of in the midpoint of the range that they want to achieve. So
02:26I think the pressure is not that high for them to change their policy in a very significant
02:31way. We'll see. I mean, the last week of July, we will get a political meeting, and they
02:36will set the policy tone. But I think, you know, and the point that you made that the first
02:41two months in Q2 is weak, but now we get a little bit of rebound, right? Particularly retail
02:46sales turning positive. So I'm not sure, you know, they have to do something very meaningful.
02:52What would drive that retail sales to go positive now? What do you think was behind that?
02:56Yeah, I'm a bit surprised, to be honest. I would expect, you know, a slightly negative
03:01number as well. So I have to look into the data points. Sometimes this, you know, monthly
03:07data is a bit noisy. The high-frequency data point, we track, not that strong. So, yeah, I'm
03:13curious as well. How would you describe domestic demand compared to, okay, let's call it because
03:19month to month, it can be noisy. Compared to this time last year, how much have things improved
03:23in domestic demand? I don't think it changed that much. What changed on the margin is the
03:30policy, right? So last year, there was a lot of support for, you know, subsidies and for
03:36autos and electronics and all these products. They are fading out, right? So, and their marginal
03:43impact fade out as well because, you know, you can't buy too many cars. So, look at the
03:50highlight numbers. They are not as strong as last year. But if you look at the, you know,
03:54consumer sentiment, you look at housing saving rates, these kind of things, I would say roughly
04:00the same as last year.
04:03There's a fixed access investment picture, which has been turned negative the last few times,
04:08the last few prints here. And it seems like it's deteriorating, right? When we're talking about
04:11a 5.7% print here. What does that tell us fiscally, right? It seems like they're not willing to
04:18really
04:18kind of spend when it comes to infrastructure investments, all about curbing debt risks in local
04:23governments. Is that likely going to stay? Yeah, that's the point where I think in Q3,
04:29we might see a bit of a pickup. So what happened this year is first quarter, I think the government
04:34was really pushing to deliver a pretty good GDP growth number. And they did it. And then the second
04:40quarter, probably they felt, okay, we don't have to, you know, overshoot again. So if you look at the
04:47fiscal numbers, like a fiscal spending, debt issuance, they were kind of a behind schedule.
04:53Now, going into Q3, I think the pressure is on. I think the fiscal side, we might see a bit
04:58of a
04:58pickup. That could help to bring the overall GDP numbers stabilize or even improve a little bit in
05:04Q3. Yeah, in fact, we ran a story today on the Bloomberg, and this is based on projections from
05:11several brokers here, to your point. I'll read the headline, I think the graphic's coming up too,
05:14that China is set for a record bond issuance this quarter. And I think also on the back of
05:20the story, the PBC might be looking to inject some liquidity. So you get, of course, some of
05:23the take up here. There we go. 4.3 trillion is the estimates for the third quarter specifically.
05:29Talk to us about how you would describe the attitudes among fiscal authorities here. And as far as
05:35where do you think the spending might pick up? And where do you think they need to,
05:40they've been very careful about the debt buildup too, as well.
05:43Yeah, I think the first half of the year, I think on the fiscal front is very quiet. I think
05:50the
05:50revenue side is doing okay, but the spending side is not particularly strong. It feels like there's
05:58no urgency to push out this fiscal spending or infrastructure investment. But I think now with
06:07this Q2 GDP number, we probably will see more incentive for the fiscal authorities to speed
06:14up their operation. And that happened in the past few years. It's kind of a seasonal pattern. First
06:20quarter is good. And then by the middle of the year, the economy weakened a bit. And then second
06:25half of the economy, the government tried to push, particularly on the fiscal side, and improve the
06:31economy. So I would expect the pattern to happen again.
06:36What should I expect for exports? Is that? Yeah, exports are super strong. I think so. I think, I mean,
06:41you know, it's really amazing in the past few years, continue to beat our expectation and market
06:46expectation, right? And the June number is super strong. Single month, more than 400 billion US
06:52dollars, record high. I think the second half, you will continue to be very strong. Look at the
06:58momentum. It's very broad based. The AM boom is happening, auto sales, all kinds of, if you look
07:04at the products and the country breakdown, it's pretty broad based. So I think the Q3 export continue
07:09to perform very well. That's the major driver of the economy. I mean, is it just me or it's not
07:16as
07:17exciting on the macro front? Lots of people talk about exports within exports. A lot of people talk
07:21about tech. I mean, you spend a lot of time in Shenzhen. Are we ignoring some of the stories that
07:26we
07:26should be focused on here? Like tech, for example, like where, where, where, what are people talking
07:30about? And I think from the investor's perspective, I think in the first, even in the beginning of
07:37the year, there's a already a very strong consensus that domestic demand is weak and probably will stay
07:43weak for a while. And the government response there is not overwhelmingly strong. So it's stable,
07:50though. Exactly. It's a stable. It's not falling very quickly. If it falls rather quickly,
07:55the government will respond very quickly. Right. So you get, you know, more volatility and you will
08:00make investors on the market excited. But, you know, it's kind of stable. So it's a bit boring.
08:07Whereas on the other side, on the AI story, on the export story, you do see bottom up firms
08:14delivering very good numbers. And we've seen, you know, global investors coming to China. You know,
08:20that's where they want to go. They want to go to the factories, look at the AI companies,
08:24robotics and all this company. And you, you can tell a very exciting story and they buy
08:29it. So, so there's sort of a bright spot that structural story that people focus on.
08:35But is it too concentrated though, on just, you know, manufacturing, can it actually spill
08:40over to the broader economy? That's a big question. I think the, on the very senior
08:44level, on the government level, they're hoping that these, these bright spots will broaden out.
08:49Right. And in China, you could argue this is because China, what China is good at is applications.
08:54Right. So they hope, they're hoping that AI can be applied to a broad range of, you know,
08:59manufacturing and service sectors that we'll hopefully in the second half, we'll see more
09:04examples.
09:04So despite that disappointing GDP growth reading, China appears to have broken out of this three-year
09:11deflationary spell. The GDP deflator increased 1.6% from a year ago. That's according to our
09:17calculations based on this government data. So has it exit out of deflation? You know,
09:23that certainly could be a positive sign in some ways. So certainly that's one thing to watch very
09:27closely. We're watching some of these movers in particular came to property stocks. There was some
09:31movement there after that home price data. New home prices seems like the, the, the slowdown is
09:37slowing, right? The, the, the, the negative, the negative is closer to zero now. So that certainly
09:41is boosting the sector. It didn't really help the secondary market in the, you know, used home
09:46prices concern, but at least we are still seeing some signs of green there.
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