Preliminary recovery in oil imports, but China's growth rebound still requires fiscal support

Overview

The report uses high-frequency alternative data such as port shipping, industrial operating rates, auto sales, government bond issuance, central bank operations, housing transactions, and commodity prices to track trends in China's trade, production, policy, real estate, and inflation. The core conclusion is that oil imports began to recover in the second half of July, and total exports remained resilient, but the July Purchasing Managers' Index was weak, auto and steel activity came under pressure, and the economy entered the current quarter at a weaker starting point than expected. J.P. Morgan's assessment of the growth recovery in the second half still depends on stronger fiscal support and export resilience.

Core views

The year-over-year decline in tanker arrivals narrowed sharply, and together with a rebound in petroleum asphalt plant operating rates, this suggests that the decline in crude oil processing output may narrow compared with June. Ports recovered after typhoon disruptions, and bulk shipping drove growth in export-related vessel tonnage, but containers and shipping to the U.S. weakened, indicating that the export structure is uneven. On the fiscal side, the near-term focus is expected to shift from increasing issuance to accelerating spending, while incremental stimulus will depend on subsequent data. Monetary policy maintains a moderately accommodative stance, but a potential 10-basis-point rate cut would be more of a policy signal, with limited substantive easing. Real estate transactions have rebounded somewhat, but prices, land transfers, and sustainability indicators remain weak; the consumption side is dragged down by a sharp decline in auto sales.

Analysis framework

The report maps high-frequency alternative indicators to monthly official economic activity: tanker arrivals and petroleum asphalt plant operating rates are used to assess crude oil imports and processing; tire, rebar, and coke oven operating rates are used to infer auto and steel production; vessel deadweight tonnage and freight rate indices are used to assess trade; bond issuance and central bank open market operations are used to observe policy intensity; and housing transactions, land transfers, and commodity wholesale prices are combined to assess real estate and inflation.

Methodology notes

• Macro High-Frequency TrackingMapping Alternative Data to Official Economic Activity

  Use leading or coincident high-frequency indicators to infer the direction of monthly official data.

  Data such as port shipping, industrial facility operating rates, weekly sales, and real estate transactions are released at high frequency and can be used to assess changes in trade, production, and demand before official monthly data are published.

• Trade AnalysisVessel Deadweight Tonnage and Freight Rate Tracking

  Break down inbound and outbound port deadweight tonnage by tankers, bulk carriers, and container ships.

  Tanker arrivals are used to observe crude oil imports; bulk carriers reflect bulk trade such as coal, iron ore, and grain; container ships are closer to trade in consumer goods, machinery, and electronics.

• Industrial Production AnalysisOperating Rate Proxy Indicators

  Estimate changes in industrial production using operating rates of facilities in related industries.

  Operating rates of petroleum asphalt plants, tire factories, rebar mills, and coke ovens provide directional signals for crude oil processing, autos, steel, and related industrial activities, respectively.

• Policy AnalysisFiscal Issuance and Liquidity Operations Tracking

  Evaluate policy support by combining the pace of government bond issuance and central bank tools.

  The report compares central and local government bond issuance amounts and the completion rate versus annual targets, and tracks the medium-term lending facility, outright open market operations, pledged operations, and reverse repos.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Crude oil and petroleum value chain

  Tanker arrivals and petroleum asphalt plant operating rates show marginal recovery in import and processing activity.

  Strengths

  The year-over-year decline in July tanker arrivals narrowed from more than 35% in June to about 5%, and petrochemical product prices also rebounded in the middle to late part of the month.

  Weaknesses

  Related indicators are still in year-over-year decline, and facility operating rates are below pre-Middle East conflict levels.

  Comparison

  Markedly improved compared with June, but not yet back to clear year-over-year growth.

  Risks

  A low base, oil price volatility caused by geopolitics, and insufficient domestic demand may weaken the recovery signal.

• China export and shipping chain

  Port deadweight tonnage and freight rates reflect export volumes and transportation structure.

  Strengths

  Outbound deadweight tonnage excluding tankers rose 21.3% year over year, bulk carriers rose 26.9%, and ports largely recovered after typhoon disruptions.

  Weaknesses

  Container ship deadweight tonnage fell 5.6% year over year, shipping to the U.S. fell 3.5% year over year, and freight rates on major routes declined.

  Comparison

  Overall volume growth accelerated compared with June, but the structural divergence of strong bulk and weak containers widened.

  Risks

  Slowing external demand, trade frictions, weather disruptions, and further declines in freight rates.

• China auto value chain

  Sales and tire factory operating rates together point to weaker auto demand and production.

  Strengths

  New energy vehicle sales fell only 2% year over year, showing greater resilience than the overall market.

  Weaknesses

  Passenger vehicle retail sales fell 18% year over year, and the decline in auto output may widen compared with June.

  Comparison

  New energy vehicles performed better than overall passenger vehicles, but still did not achieve growth.

  Risks

  Weaker subsidies and tax incentives, rising fuel costs, and insufficient domestic demand.

• China steel and building materials value chain

  Steel mill operating rates, rebar prices, and real estate activity jointly affect industry conditions.

  Strengths

  Housing transactions turned positive year over year, potentially providing limited demand support.

  Weaknesses

  Steel industrial production may turn negative, while rebar and cement prices are at low levels and continue to weaken.

  Comparison

  The production side weakened further from zero growth in June, and demand improvement is not yet sufficient to reverse price pressure.

  Risks

  An unsustainable real estate recovery, a weak land market, and overcapacity.

• China real estate

  New home, second-hand home transactions, and land transfer indicators are used to assess real estate demand and local fiscal conditions.

  Strengths

  Both new home and second-hand home transactions achieved year-over-year growth, and sales managers' confidence has rebounded over the past three weeks.

  Weaknesses

  The improvement in transactions was limited, second-hand home listing prices continued to decline, and land transfer amounts were significantly lower than last year.

  Comparison

  New home transactions shifted from a 6.9% year-over-year decline in June to 1.5% growth in July, while second-hand home growth slowed from 12.3% to 4.6%.

  Risks

  Falling prices, deterioration in land finance, and a lack of sustainability in the rebound in transactions.

• China rates assets

  Fiscal issuance, central bank liquidity operations, and rate-cut expectations affect bond yields.

  Strengths

  The central bank injected net liquidity through the medium-term lending facility and outright open market operations, while the policy stance remained moderately accommodative.

  Weaknesses

  Rate-cut expectations were postponed from the third quarter to the fourth quarter, and the actual stimulus from a potential 10-basis-point cut would be limited.

  Comparison

  The monetary easing timetable has been pushed back versus previous expectations, and the near term depends more on faster fiscal spending.

  Risks

  Weaker-than-expected growth data may drive further easing, while fiscal support and higher energy prices may affect the room for rates to decline.

Key data

• July tanker arrivalsDown about 5% year over yearThe year-over-year decline exceeded 35% in June; there was a clear recovery in the second half of July, partly affected by a low base.
• July outbound vessel deadweight tonnageUp 21.3% year over yearExcluding tankers, compared with 17.2% year-over-year growth in June; the improvement was mainly driven by the recovery of bulk shipping after typhoons.
• July outbound container ship deadweight tonnageDown 5.6% year over yearDown 9.6% month over month, indicating a clear weakening in container shipping.
• July outbound bulk carrier deadweight tonnageUp 26.9% year over yearUp 2.0% month over month, the main contributor to the improvement in overall port shipping.
• July shipping to the U.S.Down 3.5% year over yearDown 9.9% month over month; in June, the figures were up 4.9% year over year and up 13.6% month over month, respectively.
• July government bond issuanceRMB1.154 trillionClose to RMB1.138 trillion in June.
• Annual issuance progress of central government bonds49.8%Lower than 57.4% in the same period last year.
• Passenger vehicle retail sales from July 1 to 26Down 18% year over yearAffected by factors such as reduced vehicle replacement subsidies and purchase tax incentives, as well as rising fuel costs.
• New energy vehicle sales during the same periodDown 2% year over yearThe decline was much smaller than that of the overall passenger vehicle market.
• July new home transactions in 30 major citiesUp 1.5% year over yearDown 6.9% year over year in June, but the sustainability of the improvement has not yet been proven.
• July second-hand home transactions in major citiesUp 4.6% year over yearThe growth rate was lower than June's 12.3%.
• July agricultural food pricesDown 1.0% year over yearDown 0.5% year over year in June, expanding the drag on headline consumer prices.
• July pork wholesale pricesUp 7.3% month over month, down 24.0% year over yearThe year-over-year decline narrowed from 28.3% in June.

Impact & implications

The combination of data implies that China's economy is not recovering in sync, but instead shows a divergence in which external demand and some bulk imports are improving while domestic demand and industrial activity remain weak. The rebound in oil imports and petrochemical prices provides marginal support to the energy value chain, while stronger bulk trade than container trade is more favorable to bulk shipping than to the consumer goods export chain. Faster fiscal spending may become a key catalyst for growth repair in the second half, but the lagging pace of bond issuance, weak auto consumption, and pressure on land revenue limit the slope of the recovery. The postponement of monetary easing expectations means limited near-term catalysts for rates assets, and the market needs to pay more attention to actual fiscal implementation and official activity data.

Risks

• The July Purchasing Managers' Index was weaker than expected, and the economy may have entered the current quarter on a weaker footing than previously assessed.
• The improvement in tanker arrivals was partly affected by a low base, and the strength and sustainability of the oil import recovery remain uncertain.
• Container shipping and shipping to the U.S. weakened, and export resilience may be lower than indicated by overall vessel tonnage.
• Auto sales and production are weak, and reduced subsidies and tax incentives may continue to drag on consumption.
• The improvement in housing transactions is limited, while home prices and land transfer revenue remain under pressure.
• The annual pace of fiscal bond issuance lags last year; if actual spending does not accelerate sufficiently, the growth recovery in the second half may fall short.
• Tensions between the U.S. and Iran may push up energy prices and exacerbate imported inflation and corporate cost pressures.
• The report relies mainly on high-frequency proxy indicators, and there may be mapping errors between these and final official data.

What to watch

• Whether tanker arrivals and crude oil processing output in August can move from a narrowing decline to growth.
• Whether the divergence between container and bulk shipping continues, and whether official export data validate the port signals.
• The pace of actual fiscal spending after central and local government bond issuance, as well as additional stimulus measures.
• Whether a rate cut is implemented in the fourth quarter, and whether more forceful easing tools emerge beyond a 10-basis-point adjustment.
• Whether passenger vehicle and new energy vehicle sales can stabilize after changes in subsidy policies.
• Whether the improvement in new home and second-hand home transactions can continue and drive a recovery in prices and land transfer revenue.
• The net impact of rising energy and petrochemical prices and falling food prices on consumer prices and producer prices.
• The indication from steel, tire, petroleum asphalt, and coke oven operating rates for subsequent official industrial production data.