April activities improved across the board
As the Chinese economy gets back to normal gradually and policy easing kicks in (e.g. credit growth picked up), April economic growth continued to improve, although retail sales and manufacturing investment still declined by 6-8%y/y. Property sales and new starts narrowed year-on-year (y/y) decline to 1-2%, while property investment picked up to 7%. Policy and credit support underpinned infrastructure investment rebound to 4.8%, but manufacturing investment continued to decline albeit at a slower pace. Therefore overall urban FAI turned positive 0.7% in April, partly helped by stronger investment in education and health sectors. Meanwhile, retail sales declined by less to -7.5% with still weak catering sales, while exports surprised on the upside partly due to the clearing of some backlog orders. Thus IP growth beat expectation at 3.9%.
NPC preview: de-emphasized target, more policy easing and reforms
We expect the much-awaited NPC meeting (scheduled on May 22) to set a clearer easing policy stance for the rest of the year. We see the government de-emphasizing GDP growth target significantly, either without setting an explicit full year target, or mainly focusing on GDP growth guidance in H2 2020 (full recovery by end year or H2 y/y growth of 5%+), due to the unprecedented COVID-19 shock.
Recovery to continue, with potential headwinds from global downturn
Cautious consumer sentiment, the expected sharp decline in global demand, and potential supply chain disruption (and decoupling pressures) will bring downward pressures. The latest China housing survey in April showed a significant weakening of market sentiment and home purchase intention, while marginal property easing at local levels, easier liquidity coupled cheaper and easier mortgage, and recent land and hukou reform should prevent a big fall of property activates. We expect Q2 GDP to rebound strongly on sequential basis but record a slight contraction on y/y basis. We maintain our 2020 GDP forecast at 1.5%. Should the NPC reveal a much larger than expected stimulus package, China's growth could approach 3% for 2020 due to a stronger H2 recovery. However, a deeper and more long lasting global recession and serious escalation of US-China economic tension are the biggest downside risks to growth this year.