Perspectives

Households are still worried

Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
5
CHINA  
HOUSEHOLDS ARE STILL WORRIED  
The economy continues to recover. Initially driven by a rebound in industrial production and investment, the recovery  
broadened over the summer months. Exports have rebounded and activity has also picked up in the services sector.  
Yet it continues to be strained by the timid rebound in household consumption, which is far from returning to normal  
levels. The unemployment rate began to fall right again after the end of lockdown measures, but this decline has  
been accompanied by an increase in precarious jobs and large disparities, with the unskilled and young college  
graduates being particularly hard hit.  
Whereas the economic recovery since March has been initially driven  
by the rebound in industrial production and investment in public  
infrastructure and real estate, there has been a more widespread  
strengthening in activity since the summer. Exports have posted a solid  
rebound and growth in the services sector has gained momentum.  
Although private consumption has shown some signs of recovering,  
households remain very cautious. In the months ahead, whether the  
economic recovery consolidates will depend largely on the authorities’  
stimulus policy as well as on export performance and labour market  
trends.  
GROWTH AND INFLATION (%)  
GDP Growth  
Inflation  
Forecast  
Forecast  
7.5  
8
6
4
.0  
.0  
.0  
6.7  
6
.1  
2
.9  
2.8  
A BROADER RECOVERY  
2.5  
2
.3  
2
.1  
Industrial production has continued to strengthen, rising 5.6% year-on-  
year (y/y) in August in volume terms (+3.6% in value), up from 4.8% in  
June and July. In the first eight months of 2020, industrial production  
slightly exceeded the level reached in the same period in 2019 (+0.4%).  
Activity seems to have returned to normal in a large number of  
industrial sectors. Yet many corporates still remain severely weakened  
following the losses reported in Q1 2020. Although profits of industrial  
enterprises have rebounded over the past four months, they were still  
2.0  
0.0  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
CHART 1  
SOURCE: BNP PARIBAS GLOBAL MARKETS  
8
% lower in January-July 2020 than in the same period in 2019. In the  
A STEADY EXPORTS REBOUND  
services sector, activity has continued to pick up slowly (+4% y/y in  
August, vs 3.5% in July and 2.3% in June). After a more drastic downturn  
than in industry during the Q1 lockdown, the recovery since March has  
proved to be slower.  
Trade balance, 3mms (RHS)  
Imports of goods, y/y (LHS)  
Exports of goods, y/y (LHS)  
%
USD bn  
180  
60  
40  
20  
0
On the demand side, the rebound continues to be fuelled by domestic  
investment. In the first eight months of 2020, investment was only  
1
1
9
50  
20  
0
0
.3% below the level reached in the same period in 2019. It remains  
driven by new projects in public infrastructure and real estate.  
Manufacturing investment also rebounded in August; yet, in the first  
eight months of 2020, it was still 8.1% below the level reached in the  
same period in 2019. In the short term, investment in infrastructure  
should remain dynamic, bolstered by a still expansionist fiscal policy  
stance. In contrast, monetary policy is expected to be less supportive,  
which should contribute to slower growth in real estate investment.  
In the manufacturing sector, the rebound in investment should gain  
momentum if corporate profits continue to improve and export  
performance remains solid. Even so, corporates will probably maintain  
a cautious approach, due to possible financial difficulties and because  
uncertainty over the recovery in world demand and US-China tensions  
continue to strain export prospects.  
-
-
-
20  
40  
60  
60  
30  
0
2
014  
2015  
2016  
2017  
2018  
2019  
2020  
CHART 2  
SOURCE: GENERAL ADMINISTRATION OF CUSTOMS  
2
019). As total import value has declined (volumes have increased but  
After declining rather moderately over the period March-June,  
merchandise exports rebounded by 7.3% y/y (in USD) in July and 9.5% in  
August (Chart 2). This strong performance is mainly due to high demand  
price effects have remained negative), the trade surplus has grown in  
recent months.  
for medical devices and equipment and technological goods, as well as China is far from reaching the level of purchases of US goods stipulated  
to China’s advantageous position in the Covid-19 crisis: as the first in the Phase 1 trade agreement signed with Washington earlier this  
country to reopen after the lockdown and to start up production, it has year (imports in the first seven months of 2020 would have accounted  
been able to respond rapidly to demand from its trading partners as for a little less than half of the target for the period according to  
soon as it began to rebound. As a result, China has managed to increase estimates by the Peterson Institute for International Economics), but  
its share of global exports (to about 14% in H1 2020 from 13.3% in neither party is presently calling the trade deal into question.  
The bank  
for a changing  
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Eco Perspectives // 4th quarter 2020 (completed on 30 September 2020)  
economic-research.bnpparibas.com  
6
PRIVATE CONSUMPTION IS STILL RESERVED  
OFFICIAL UNEMPLOYMENT RATES UNDERESTIMATE THE Q1 SHOCK  
Private consumption has shown signs of recovery but still seems far  
from returning to normal. In value terms, retail sales reported slightly  
positive growth in August (+0.5% y/y) for the first time this year, but  
they were still down 1.1% in volume terms. In the first eight months  
of 2020, retail sales were still well below their 2019 level (-8.6% y/y).  
E-commerce has continued to make inroads. The amount of online  
retail sales of goods increased 16% y/y in August, and accounted for  
%
Registered urban unemployment rate  
Surveyed urban unemployment rate  
Surveyed urban unemployment rate, 31 cities  
7
6
5
4
3
2
3
6% of retail sales in H1 2020, vs 25% in 2019. Evidently, households  
are still worried. Consumer confidence indexes began to recover in July,  
after plummeting throughout the first half, but they are still holding  
below 2018-19 levels. This mistrust can be attributed principally to  
health risks and labour market trends.  
THE CRISIS LEAVES ITS MARK ON THE LABOUR MARKET  
The main official unemployment rate (based on people registered at  
the local employment service agencies) has not increased much, rising  
from 3.62% in Q4 2019 to 3.84% in Q2 2020 (equivalent to 10.1 million  
individuals). The unemployment rate estimated by the National Bureau  
of Statistics (NBS) based on survey data is considered to be more  
exhaustive; it increased more sharply from 5.3% in December 2019 to  
2014  
2015  
2016  
2017  
2018  
2019  
2020  
SOURCE: MINISTRY OF HUMAN RESOURCES AND  
SOCIAL SECURITY, NBS  
CHART 3  
The improvement in labour market conditions, observed as soon as  
lockdown restrictions were lifted, could continue in the short term  
thanks to public-sector construction projects and most importantly  
if export performance remains strong, thus supporting activity in the  
manufacturing sector. This is still uncertain, however, as it will depend  
on external conditions. At a time when the squeeze on household income  
could continue to be felt for some time to come, the strengthening in  
China’s social welfare system increasingly appears to be necessary to  
stimulate private consumption in the short and the medium terms.  
6
.2% in February (Chart 3). It has fallen again since March (to 5.6% in  
August) but remains higher than the pre-crisis unemployment rates.  
However, these official unemployment rates largely underestimate  
the shock that has hit the population. First, the scope of calculation  
is limited since: 1) it only takes into account the urban labour market,  
and 2) it excludes a large number of migrant workers who lost their  
jobs in urban areas during the lockdown, many of whom returned to  
their rural residence. According to the most common estimates, at least  
8
0 million individuals throughout the country had lost their jobs at the  
end of February (out of 775 million jobs in 2019, of which 291 million  
were held by migrant workers).  
The labour market began to improve as of March as the unemployment  
rate fell and migrant workers began to return to urban areas. However,  
the situation remains very difficult for certain categories of individuals.  
Average unemployment rates mask high disparities, with the unskilled  
and recent college graduates being hit hardest. In 2020, 8.7 million  
young college graduates must enter the labour market, mostly during  
the summer. As a result, the unemployment rate for the 20-24 age  
group continued to rise in August according to the NBS (it would be  
close to 20%). The government is particularly alarmed by this situation  
and has asked local governments and state-owned enterprises to  
strongly step up their hiring this year. Lastly, the downturn in the job  
market is also illustrated by the significant rise in precarious jobs  
(
part-time work, self-employed, online retailers…) which is partially  
encouraged by the authorities.  
As a result of these dynamics, the average disposable income per capita  
declined by 1.3% y/y in real terms in H1 2020 (the 3.9% contraction in  
Q1 was followed by a slight rebound in Q2). This trend has resulted  
from the decline in real wages and the collapse in net business income  
(
for self-employed). The loss of earned income has strained private  
consumption even more since it has mainly affected low-income  
households, and has not been offset much by an increase in social  
welfare benefits. The authorities have introduced a few measures to  
directly support households, but yet their stimulus plan has focused  
primarily on programmes to support corporates and public investment.  
The bank  
for a changing  
world  
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