China’s recovery is not much of a surprise
Strong consumption during the January holidays eased back in February and infrastructure spending is not growing robustly, either. This hints at only a gradual continuation of the recovery in February. We expect this will persist until March, after which, the Two Sessions will provide us with further clues
China's recovery is not a big event, yet
China's economic reopening appears to be a gradual one. Consumption was very strong during the holidays in January but was more subdued in February. We have not seen 'revenge' spending. This is especially true in the car market as subsidies for electric vehicles have ended. We also do not expect strong handset sales in February as many people bought new handsets during the recent holidays.
Nevertheless, we believe that consumption strength is increasing following an improving jobs market. After the Chinese New Year, more people landed jobs in the services sector. And wages in factories have generally increased. This should have a positive knock-on effect on the jobs market in the services sector and China could experience a rising wage spiral in the first half of 2023.
Infrastructure is lagging as the second growth engine
We have not yet seen the infrastructure investment data from the government. But media reports do not suggest a lot of new infrastructure projects from local governments. This might be related to the change of government personnel at the Two Sessions. If so, we should note from the Two Sessions: 1) the scale of new issuance of local government special bonds, which we expect to be CNY4 trillion; and 2) which sub-sectors within infrastructure should receive the most government money.
For the latter, we believe that environmental, social, and corporate governance (ESG) infrastructure and technology research and development infrastructure will be prioritised over brand-new transport infrastructure.
Infrastructure and local government bonds
All eyes on the Two Sessions
There will be a lot of attention on the Two Sessions given that it is a year of new government personnel even though President Xi Jinping remains the leader. And the country faces more geopolitical tensions with various parts of the world. In addition, it is a year of recovery. The Two Sessions will give us many hints on policy direction, and how that will affect different sectors.
You can read our Two Session preview here.
Given the gradual pick-up of the economy, we are keeping our GDP forecast for 2023 at 5%.
Download
Download article
2 March 2023
ING’s March Monthly: The search for a new equilibrium This bundle contains 13 articles"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.
This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.
ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).