China in Pictures-Slow but persistent weakness

Economic Growth - China's GDP growth is expected to decelerate to 4.9% in 2024, down from previous forecasts due to weaker domestic demand and a slowdown in the services sector[1][46]. - In Q2 2024, GDP growth slowed to 4.7% YoY from 5.3% in Q1, marking the lowest sequential growth since Q4 2022[1][46]. Sector Performance - The services sector's growth slowed to 4.2% in Q2, primarily due to a deteriorating property market and reduced government spending[1][4]. - The industrial sector maintained a growth rate of 5.6% in Q2, supported by strong exports[1][4]. Household Income and Spending - Household income growth decreased to 4.5% in Q2 2024 from 6.2% in Q1 and 6.3% in 2023, leading to reduced household spending on essentials[1][6]. - Consumer inflation has turned positive but remains subdued, with expectations of gradual improvement to 0.9% by the end of 2024[1][48]. Fiscal Policy and Government Spending - Total fiscal spending shrank by 2% YoY in the first five months of 2024, indicating a downward trend in government expenditure[1][24]. - A budget revision may be necessary in H2 2024 to achieve the 5% annual growth target amid declining local government revenues[1][48]. Trade and Exports - Exports are projected to remain a bright spot, with growth driven by increasing demand from emerging markets, which saw exports to EMDEs nearly double from 2018 to 2023[1][108]. - The impact of new US and EU tariffs on Chinese exports is expected to be minimal, affecting only about 0.5% of total exports[1][123]. Monetary Policy - The People's Bank of China (PBoC) is expected to implement a modest rate cut of 10bps by the end of 2024, facing constraints from the need to maintain currency stability[1][56]. - The PBoC's focus on exchange rate stability limits the scope for aggressive monetary easing, despite the need for support amid low inflation and softening credit demand[1][116]. Investment Trends - There has been a notable increase in Panda bond issuance, with a total of RMB 45 billion issued between January and May 2024, driven by low lending costs[1][304]. - The net issuance of Dim Sum bonds has also increased significantly, reflecting the favorable interest rate differential and the need for onshore enterprises to access cheaper USD funding[1][330].