JPMorgan Econ FI-Greater China-109893096

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Haibin Zhu (852) 2800-7039

haibin.zhu@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com

Tingting Ge (852) 2800-0143

tingting.ge@jpmorgan.com

Ji Yan (852) 2800-7673

ji.yan@jpmorgan.com

Asia Pacific Economic Research

Global Data Watch

17 August 2024

JPMORGAN

growth. Despite the policy shift since the July Politburo meet-

ing, the magnitude of policy adjustment runs the risk of being

insufficient to stabilize the economy.

Activity remained soft in July

China’s July activity data generally came in on the weak side,

with significant slowing in exports, slowing FAI and ongoing

housing drag, while domestic consumption picked up moder-

ately (after the contraction in June). IP grew 5.1%oya,

remaining flat m/m sa (0.0%), following a 1.1% m/m sa rise

in June (Figure 2). Retail sales grew 2.7%oya (rising 0.8% m/

m sa, following the decline of 1.3% m/m sa in June). Service

production growth came in at 4.8%oya (vs. 4.7%oya in June).

Regarding the labor market, the survey-based unemployment

rate rose 0.2%-pt to 5.2% in July.

-20

-10

-5

12 13 14 15 16 17 18 19 20 21 22 23 24

%change, both scales

Figure 2: China industrial production

%3m/3m saar

%oya

Source: NBS, J.P. Morgan

Fixed investment came in below expectations, rising 3.6%oya

in January-July, or a modest pace of 1.9%oya in July. A fur-

ther breakdown shows moderation in manufacturing FAI

(8.3%oya in July, vs. 9.3% in June) and further slowing in

infra FAI (2.0%oya in July, vs. 4.6% in June), along

with ongoing sluggishness in real estate investment (falling

10.8%oya, vs. -10.1% in June) (Figure 3). By ownership, pri-

vate investment stayed weak, with 0.0%oya growth in Janu-

ary-July, while public investment rose 6.3%oya.

-30

-20

-10

11 12 13 14 15 16 17 18 19 20 21 22 23 24

Source: NBS, J.P. Morgan

Figure 3: FAI growth by industry

%oya, 3mma Manufacturing

Real estate

Infrastructure

•China: Credit disappointed again, led by weak loans

•Activity remained soft as policy effect is still absent

•Revising 2H quarterly growth profile

•Taiwan: 2Q GDP shows moderate consumption and

export growth, with a capex bounce

•Expect steady and broad-based 2H growth

•Next week: China LPRs, Hong Kong CPI, Taiwan

export orders, IP and unemployment rate

Credit data came in below expectations in July. TSF flow

printed at 771bn yuan and TSF growth edged up to 8.2%oya

(Figure 1). New loan creation came in weak at 260bn yuan,

with loan growth slowing to 8.7%oya. Meanwhile, M2

growth edged up to 6.3% but M1 growth registered another

record low at -6.6%oya. Our estimate of the credit impulse

(the gap between TSF growth and nominal GDP growth) was

unchanged at 4.0%pts.

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

%oya

Figure 1: China TSF growth

Source: PBOC; J.P. Morgan

The CNY loan component in TSF registered the first monthly

decline on record (-77bn yuan), reflecting weak loan demand.

Private corporates in general have remained cautious about

investment decisions and increasing leverage, amid the chal-

lenging business environment, deflationary concerns, and an

uncertain economic outlook. Household loans are also weak

given July’s renewed weakness in new home sales. We also

think banks have less incentive to lend, given low interest

rates, NIM compression pressure and capital adequacy prob-

lems (especially for smaller banks). Non-loan components in

TSF came in as expected in July, with net government bond

issuance at 691bn yuan, net corporate bond issuance at 203bn

yuan and net decline in shadow credit of 76bn yuan.

Our forecasts look for another 25bp RRR cut in 3Q and a

10bp rate cut in 4Q. The changing Fed rate outlook and miti-

gated CNY depreciation pressure open room for the PBOC to

maintain small-step rate cuts in the coming quarters. But

overall, monetary policy can hardly be labelled as accommo-

dative given the slow pace of rate cuts and weak credit

Greater China

Haibin Zhu (852) 2800-7039

haibin.zhu@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com

Tingting Ge (852) 2800-0143

tingting.ge@jpmorgan.com

Ji Yan (852) 2800-7673

ji.yan@jpmorgan.com

Asia Pacific Economic Research

Greater China

17 August 2024

JPMORGAN

The soft July activity data reinforce the downside risk to our

current quarter growth forecast we recently warned about. In

our previous forecast, we penciled in a policy shift after the

April Politburo meeting that would support a recovery to

trend growth in 2H (4.5%q/q saar on average). However, the

policy effect has so far been absent, either because the policy

easing is not sufficient or due to a lag in policy action or

transmission.

The housing policy easing in May temporarily improved new

home sales and new home starts in June, followed by

renewed weakness in July. Infra FAI growth slowed to

2.0%oya in July, the weakest monthly reading since 2022.

This is related to the slow pace of special local government

bond issuance this year, attributable to limited pool of quali-

fied projects and the lifetime personal accountability scheme

for government officials in investment projects. The July

Politburo meeting emphasized that counter-cyclical policy

measures should be strengthened, and boosting consumption

received higher policy priority, especially support for service

consumption. Then last week the State Council announced 20

measures to support consumption. The NDRC mentioned that

some proceeds from special Treasury bonds and special LGB

could be part of this support, but has provided no details.

Housing time inconsistency issues persist

Although the housing market is undergoing its most severe

downturn in three decades, the policy adjustment has

remained gradual, creating two major time inconsistencies.

First, slowing the price adjustment to protect household net

worth has prolonged the quantity adjustment. Second, the

housing drag on growth remains significant, and cannot be

offset by replacement drivers such as high-end manufactur-

ing.

The NBS 70 cities’ new home prices were down 5.3%oya or

0.6%m/m nsa, and secondary home prices were down

8.2%oya or 0.8%m/m nsa in July. Compared to the 2021

peak, new home starts (in floor space) contracted 65% in July,

while new home sales dropped 52%. Meanwhile, new home

prices declined 7.7%, and secondary home prices dropped

13.9% (Figure 4). As a sufficient price adjustment is still

absent, fears of further future price declines remain

entrenched. As in other asset markets, unless the market

believes that prices have bottomed out and even overshot the

adjustment, demand rarely recovers meaningfully.

Our view has been that the adjustment needs to be completed

early through a comprehensive strategy, such as a large-scale

real estate stability fund to address funding stresses for devel-

opers, a central government-led funding package to support

private housing de-stocking and public housing development,

and full removal of home purchase restrictions. The recently

concluded 3rd Plenum made some headway on Hukou and

rural land reform, but a concrete reform plan is awaited.

We do not expect a major shift from the calibrated approach

in the near term. The renewed weakness in housing activity

may trigger additional housing policy relaxation, e.g., further

loosening in home purchase restrictions in tier-1 cities and

fiscal support (reduction of stamp duty or value-added

tax). As such, we think China’s housing sector will remain a

drag on growth in 2024, at another 1.2-1.4%pts, followed by

a gradual stabilization in 2025.

100

120

140

160

180

200

11 12 13 14 15 16 17 18 19 20 21 22 23 24

New homes sold

New homes started

Secondary home price

Figure 4: China housing indicators

Source: NBS, J.P. Morgan

2010 Dec=100

Revising 2H growth profile

Despite the absent policy effect, we think a policy shift has

taken place, though the adjustment is gradual and calibrated;

hence, the policy effect tends to be modest and likely delayed

compared to our previous forecasts. In particular, acceleration

of special LGB has lagged behind our expectations, but we

maintain our view that this year’s quota will be fully issued,

though it appears difficult to complete by the end of 3Q as in

normal years (hence the policy effect will tend to be delayed

into 4Q24 and 1Q25). Expanding the use of special LGB

would be helpful to achieve this, and also helpful to improve

fiscal policy effectiveness.

Overall, the delayed policy effect leads us to revisit the quar-

terly growth forecast. We are revising down the current quar-

ter’s growth to 3%q/q saar (previously: 4%), and lift the fore-

cast for 4Q growth to 5.5%q/q saar (previously: 5%), with

1Q25 growth at 4.3%q/q saar (previously: 3.7%). Our full-

year 2024 growth forecast is now 4.6% (previously: 4.7%),

with 2025 growth at 4.0% (previously: 3.9%).

Hong Kong: U rate unchanged at 3.0%

Hong Kong SAR’s unemployment rate stayed unchanged at

3.0% sa for the three months ending July. Total employment

rose 5.3k to 3,708.6k, while the labor force rose 8.4k to

3,826.4k. Seasonally adjusted, total employment fell 0.2%m/

m sa by our estimate, while the labor force stayed unchanged

Haibin Zhu (852) 2800-7039

haibin.zhu@jpmorgan.com

JPMorgan Chase Bank, N.A., Hong Kong Branch

Grace Ng (852) 2800-7002

grace.h.ng@jpmorgan.com

Tingting Ge (852) 2800-0143

tingting.ge@jpmorgan.com

Ji Yan (852) 2800-7673

ji.yan@jpmorgan.com

Asia Pacific Economic Research

Global Data Watch

17 August 2024

JPMORGAN

in m/m sa terms. By sector breakdown, employment was up

for public administration, social and personal services,

finance, insurance, real estate and professional services sec-

tors. However, it is a bit worrisome that employment in the

retail, accommodation and food services sectors fell 4.7k (or

-1.3%m/m sa), registering the 10th consecutive month of

decline.

Business indicators remained subdued in July. The SME busi-

ness receipt current diffusion index (DI) rose 0.4pt to a still

weak level of 41.8, while the outlook DI fell 1.1pt to 45.4.

SME employment DI fell 1.1pt to 48.3, suggesting further

weakening of employment in SME businesses. Meanwhile,

the total economy PMI rose 1.3pt to 49.5, while the employ-

ment component of PMI rose 0.3pt to 49.3, both staying

below the 50-threshold. Overall, the city’s unemployment rate

has returned to the lowest level since the onset of the pan-

demic, and we expect it to remain around 3% in the near

term.

According to HK C&SD, the provisional estimate of HK pop-

ulation was 7,531.8k at mid-2024, compared with 7,527.9k at

end-2023 and 7,536.1k at mid-2023. Note that the population

has stayed above the pre-pandemic peak of 7,520.5k at end-

2019 (Figure 5). During the period from mid-2023 to mid-

2024, a natural decrease of 18.1k was recorded, together with

a net inflow of 13.8k HK residents.

7.0

7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

7.9

10 11 12 13 14 15 16 17 18 19 20 21 22 23

Figure 5: Hong Kong population

Million

Source: HK C&SD, J.P. Morgan

7,520.5k at end-2019

7,531.8k at mid-2024

Taiwan: 2Q grew 5.1% with a capex bounce

Taiwan’s 2Q GDP report shows the economy grew 5.06%oya

(compared to 5.09%oya in the advanced 2Q GDP report), fol-

lowing upwardly revised 1Q GDP growth at 6.63%oya (pre-

viously: 6.56%oya). Seasonally-adjusted, GDP grew 1.16%

q/q saar in 2Q, following 1Q growth of 0.4%. In a further

breakdown, exports of goods and services showed moderate

growth in 2Q, following solid sequential expansion in the pre-

vious four quarters. Net exports have been a drag on headline

GDP through 1H24 on strong imports, which in turn partly

reflects strong domestic fixed investment (hence boosting

capital goods imports). Following notable contraction during

the tech downcycle (3Q22-3Q23), the corporate sector

appears to have resumed capex significantly. Gross capital

formation jumped 36.3% q/q saar in 2Q (vs +17.1% in 1Q)

(Figure 6). Consumer spending grew moderately in 2Q, rising

2.0% q/q saar, following a similar expansion at 2.3% in 1Q.

-40

-20

-75

-50

-25

100

125

150

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

%q/q saar, both scales

Figure 6: Taiwan capital goods imports and gross capital formation

Source: DGBAS, MoF, J.P. Morgan

GDP gross capital

formation

Capital goods

imports

Our baseline forecasts continue to look for a steady uptrend in

Taiwan’s tech exports in the coming quarters, with ongoing

structural strength in AI-related products and HPC-related

demand, along with a gradual recovery in other tech demand

areas, including PC, smartphone, and other consumer-related

tech demand. The upturn in Taiwan’s domestic capex trend

likely reflects Taiwan manufacturers’ constructive outlook on

external demand conditions going into the coming quarters.

Meanwhile, growth concerns on the global economy seem to

be on the rise. Our global team has modestly raised the

assessed risk of a 2H25 US/global recession to 35%. On the

domestic front, the steady upturn in employment growth (and

hence household income), as well as a notable uptick in con-

sumer confidence and solid pickup in the non-manufacturing

PMI, points to solid domestic demand growth going into

2H24.

Taking all factors together, as long as the US/global econo-

mies avoid a recession (which is our current global view), we

expect the Taiwan economy to grow steadily ahead, averaging

2.6% q/q saar in 2H, reflecting a steady upturn in export sec-

tor activity and industrial activity feeding through to a decent

expansion in domestic demand. Overall, our forecast for 2024

full-year GDP growth is unchanged at 4.2%y/y.

China

Data releases and forecasts

Week of August 19 - 23

Tue Loan prime rates

Aug 20 % change

9:30am May Jun Jul Aug

1-year LPR 3.45 3.45 3.35 3.35

5-year LPR 3.95 3.95 3.85 3.85

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1HaibinZhu(852)2800-7039haibin.zhu@jpmorgan.comJPMorganChaseBank,N.A.,HongKongBranchGraceNg(852)2800-7002grace.h.ng@jpmorgan.comTingtingGe(852)2800-0143tingting.ge@jpmorgan.comJiYan(852)2800-7673ji.yan@jpmorgan.com1HaibniaZabhu(u8ab52H2i)0-7u3i7b9i.ibzi.017August20241HaibnZhu(852)0-739.57052709(z.@j...

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