China Economic Outlook. Third Quarter 2021

Summary

Q2 growth momentum moderated but with a more balanced structure. 2H 2021 policy will remain neutral but accommodative with "no sharp turnaround" to be either aggressive easing or tightening.

Key points

• Key points:
• The pace of economic recovery moderated in Q2 2021 to 7.9% y/y from Q1’s record-high growth rate of 18.3%, mostly due to the low base of last year, in line with our projected trajectory of a full-year growth at 8.2%.
• The supply and demand gap further narrowed, making the economic structure more balanced. However, To regain all the lost ground of consumption and investment, a bit of perseverance is still needed.
• Inflation risk got eased and both CPI and PPI passed their peaks in June.
• A neutral but still accommodative monetary policy “without a sharp turnaround” is the main stance in 2021. No LPR cut is anticipated in 2H 2021.
• Fiscal policy normalization is the main stance in 2021. A tightening regulation has been enhanced to curb monopolistic behavior of E-commerce giants and tech firms’ overseas listing; macro prudential policies on housing market continue.

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