China's COVID policy optimization leads to APAC economic rebound

The second quarter should mark the beginning of a rebound in the Asia-Pacific region's economy, led by the optimization of COVID-19 mitigation policies in China, said Moody's Analytics in a latest commentary.

China's official manufacturing and nonmanufacturing PMI indexes and their components have all rebounded above the 50 neutral mark, indicating rising expectations, said Moody's Analytics, a subsidiary of Moody's Corp, in a commentary on Monday.

Recent data for China's industrial production, retail sales and fixed-asset investment all showed growth, if modest, over the year. The strongest was for investment spending, although it is still dominated by the 10.5 percent year-over-year growth among State-owned enterprises – indicative of the effect of the government's fiscal stimulus to kick-start the economy this year, Moody's Analytics said.

Retail sales in China rebounded well in the January to February period, particularly for services, including catering, entertainment and transport. However, spending on goods remains soft. Indeed, auto sales have plummeted, partly because of the end of subsidies offered for electric vehicles, according to the commentary.

China's recovery will be gradual with a slow acceleration of consumer spending and investment expected to lead the way. Housing may add some heft by the second half as liquidity is directed to developers so that stalled projects can be completed. Manufacturing for exports is the wild card in China's outlook and depends upon the stability of demand from North America and Europe, Moody's Analytics said.

Chang Haizhong, executive director of corporates at Fitch Bohua, a subsidiary of Fitch Ratings, said expanding domestic demand was brought to first place of several key priorities listed in China's Government Work Report this year, emphasizing that the recovery and expansion of consumption should be given priority, the income of urban and rural residents should be increased through multiple channels, the big-ticket item consumption should be stabilized, and the consumption of daily services should be restored.

"China's consumption will lead the rapid recovery of domestic demand. Investment in infrastructure and manufacturing may show high rises in the first half of this year and low rises in the second half. The decline in real estate investment will be significantly narrowed," Chang said.

The Chinese government is also expected to further prevent and defuse local government debt risks. In terms of debt defusing, there has been strong support for key regions at the policy level. More local governments will coordinate with relevant financial institutions this year to implement substantive debt defusing measures such as debt replacement and restructuring, said Zhou Wenyu, associate director of corporates at Fitch Bohua.

jiangxueqing@chinadaily.com.cn