China’s Recovery Stabilized in June With Signs of Rebalancing

(Bloomberg) — China’s economy showed signs of more balanced expansion in June, with solid underlying growth momentum.

That’s the outlook of an aggregate index combining eight early indicators tracked by Bloomberg, which remained unchanged from May in expansionary territory. Although some economists cut their forecasts for 2021 after May’s data came in weaker than expected, the economy is still seen growing 8.5% this year, which would be the fastest in a decade.

Confidence among small and medium-sized enterprises was unchanged at the second-highest level since the Covid-19 outbreak, according to a survey of more than 500 companies by Standard Chartered PLC. The expectations sub-index picked up in June after falling in May, with the data pointing to improved expectations for new domestic orders, the report said.

“Domestically focused SMEs outperformed export-oriented SMEs for the first time this month since the second half of 2020,” Standard Chartered’s economists Shen Lan and Ding Shuang wrote in the report. “The sub-components showed that export orders saw a normalization, while domestic orders improved.”

The services industry continued its recovery following a boost from the Labor Day holiday and is catching up with the manufacturing sector, with export activity easing, they wrote.

South Korea exports, a barometer of global trade, rose at a slower pace in the first 20 days of the month from a year earlier, which might be an early sign that the days of outsize gains have passed. But this trade is still growing at a double-digit pace growth, as global vaccinations speed up and lockdowns ease in many places across the world.

Factory-gate inflation hit the highest level on record, according to Bloomberg’s tracker which comes out ahead of official data, with the commodity boom continuing to push input prices higher. However, a Bloomberg Economics analysis found that this month might be the peak, with price pressures on upstream sectors beginning to cool and inflation still contained in the downstream and consumer sectors.

The official purchasing manager indexes for industry will be released next week, and are expected to be basically unchanged from May, showing a steady expansion of demand.

Contact editor Michael Bellart (michaelbellart@caixin.com)

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