China: forget the super fast GDP growth, focus on chip shortage - ING

Iris Pang, ING's Chief Economist for Greater China, notes that China's high GDP growth in 1Q21 was a mix of base effects and genuine recovery. Without such base effects, China's GDP growth will appear more moderate over the rest of the year.

"China's GDP growth was 18.3%YoY in 1Q21, our estimate was 12%YoY, which was the lowest estimate among economists in the survey, the highest estimate was 22%. The apparent strength of these figures relies on powerful base effects from last year's first quarter (-6.8%YoY in 1Q20). A slight difference in GDP levels estimates results in very different %YoY outcomes, so it is not appropriate to get overwhelmed by what looks like a high growth data release."

"There are several points we would like to highlight for the rest of 2021 on the Chinese economy."

"1. The high GDP growth in 1Q21 will not persist over the rest of the year. Most quarters should experience moderate growth because without base effects to swell the comparison, “super-high” growth will be very hard to repeat. Quarter on quarter growth rates should continue to stabilise between 1% to 2%."

"2. China-US relations will be critical for China's economic growth, mostly in technology development. It is likely that the US will continue to put more pressure on China on this topic."

"3. Concern about chip shortages is becoming a practical issue for businesses, from investment to production to exports and domestic sales. How long this bottleneck will take to clear is unclear."

"4. We don't think there will be any tightening of monetary policy. The central government has restarted deleveraging reform focusing on the weak cash flow of real estate property developers. So, there is room for a relaxation of monetary policy."

"Our GDP forecasts are 5.5%YoY, 5.0%%YoY and 5.5%YoY for 2Q21, 3Q21 and 4Q21 respectively. And therefore, the full-year forecast has changed to 8.6% from 7.0%."