Driven by a series of policies, China's economic recovery momentum has been further consolidated.

China's manufacturing purchasing managers' index (PMI), released by the National Bureau of Statistics on June 30, rose 0.3 percentage points from the previous month to 50.9 percent, marking the fourth consecutive month in a business climate range.

Zhang Liqun, a special analyst with the China Federation of Logistics and Purchasing, said the PMI index rose slightly in June, indicating that the economic recovery was picking up speed. Since the "two sessions", the "six stability" and "six guarantee" policies have been implemented intensively, which echo all previous policies for comprehensive resumption of work and production, and the comprehensive effect of macro policies has become more obvious.

Wen Bin, chief researcher of China Minsheng Banking Corp, said in a comprehensive view, China's economic recovery has improved as a whole, but there is still considerable pressure on small and micro businesses and employment. In the next stage, macro policies should be further strengthened to support small and micro businesses, expand effective demand, and stabilize the basic disk of employment.

Earlier, the second quarterly meeting of the Monetary Policy Committee of the People's Bank of China affirmed the long-term economic growth and added some new statements such as "we will maintain an appropriate aggregate policy". At the same time, it also put more emphasis on improving the "directness" of policies and breaking through various blocking points of monetary transmission. China Business News has learned that the central bank has issued a notice on June 29, decided to cut the refinancing and rediscount rates by 0.25 percentage points from July 1.

It is worth noting that on the afternoon of June 30, at the 14th meeting of the Commission for Deepening Overall Reform of the CPC Central Committee, it was proposed to "respond to changes and open up new prospects through reform", "firmly grasp the key points, actively encourage exploration, highlight the actual effects of reform, and promote reform to better serve the overall interests of economic and social development".

The path of economic recovery is becoming clear

Under the impact of the sudden outbreak of the epidemic, China's macro economy experienced a deep contraction in the first quarter and a recovery in the second quarter. At present, the recovery momentum is strong and showing an obvious positive trend.

Xing Ziqiang, chief China economist at Morgan Stanley, told China Business News that the manufacturing PMI unexpectedly rose 0.3 percentage points to 50.9 per cent in June, compared with a consensus forecast of 50.5 per cent. The main drivers included improved production, up 0.7 percentage points to 53.9 per cent; New export orders rebounded 7.3 percentage points to 42.6 per cent as production in the developed world resumed. Middle and downstream demand has also shown signs of improvement, reflected in an increase in purchases (51.8 per cent in June, 50.8 per cent in May) and a reduction in finished goods inventories (46.8 per cent in June, 47.3 per cent in May).

Still, the employment sub-index fell 0.3 percentage points to 49.1 per cent, which Mr Xing said showed companies were still cautious about hiring.

Zhang Liqun also said that it should be noted that the external environment is still very severe, and the sustainability of the positive changes in foreign trade related indexes in the PMI remains to be seen. The level of the production index is still significantly higher than that of the demand index (order index), and the problem of the demand recovery lagging behind the supply is still outstanding. We should focus on making fiscal and monetary policies more effective in boosting domestic demand and further consolidate and strengthen the positive momentum of the economic recovery.

Pan Helin, executive director of the Institute of Digital Economics at Zhongnan University of Economics and Law, told CBN that the most difficult first quarter was over and the economy recovered well in the second quarter. China's economy is rebounding from the trough to the right track, with various policy tools to ensure positive growth. At the same time, we must be aware that domestic demand is recovering slowly and external risks and challenges are clearly on the rise. We still need to make greater efforts to return the economy to normal growth.

In addition to the PMI, the monthly growth in industrial profits for May, released on June 28, turned positive for the first time this year. An important economic indicator, the uptick in the data is further evidence of an accelerating recovery.

Macro-economic data for May also showed that the decline in market sales and fixed asset investment narrowed for three consecutive months, and the growth rate of service sector production index, high-tech industry and social sector investment all turned from negative to positive. At the same time, electricity consumption, freight volume and other physical indicators also achieved high growth.

The personage inside course of study analysis, the path of China's economic recovery has gradually clear, effective control of the epidemic in the first quarter and successfully hold the bottom line, to return to work and production in the second quarter of basic repair the supply side, under the policy of the second half of the large-scale comprehensive power demand is expected to continue to rebound, a new round of reform of dividends gradually appear, throughout the year will be relatively strong quarter by quarter recovery.

Lian Ping, chief economist and head of the Research institute at Uesc, told China Business News that economic growth will continue to pick up in the second half of the year. GDP growth in the second quarter is likely to be around 3 percent.

The International Monetary Fund (IMF) released its latest World Economic Outlook on June 24, forecasting global GDP growth of -4.9% in 2020, compared with its previous forecast of -3%. China's economy is expected to grow 1 per cent in 2020, making it the only major economy in the world that is expected to achieve positive growth.

In addition, institutions have recently started to upgrade their GDP growth forecasts for the second quarter. Nomura, for example, jumped from 1.2% to 2.6%. Lu Ting, chief China economist at Nomura, said the June PMI data showed the recovery was still on track, providing further support for the revised GDP growth forecast for the second quarter.

Structural monetary policy highlights "directness"

In order to hedge against the impact of the epidemic, the first five months saw a huge amount of domestic credit and social financing. And along with further consolidate the momentum of economic recovery, considering the macro risk of leverage climbed, and prevent the idle capital into real estate or financial markets, a few days ago, the central bank monetary policy committee meeting by the second quarter of 2020, more emphasis on improving the policy of "direct", through a variety of plugging point of monetary transmission, and the new "policy of total modest" and so on.

On June 29, the day after the regular meeting was announced, the Central bank issued a notice, deciding to cut the interest rates of re-lending and re-lending for rural residents by 0.25 percentage points and the rediscounted interest rate by 0.25 percentage points from July 1. In addition, the financial stability re-lending rate will be cut by 0.5 percentage point.

Wang Yifeng, chief banking analyst at Everbright Securities, told China Business News that the cut in re-lending and rediscount rates was highly targeted and did not represent renewed easing of monetary policy, but showed targeted support for weak links in the real economy.

Analysts believe that in the second half of the year, it will be difficult for monetary policy to be eased significantly, and the operation will closely serve the real economy, and the operation of structural monetary policy is expected to become the new normal.

The latest report from the Research Institute of the Bank of China believes that monetary policy will remain loose, but pay more attention to the operation of structural orientation and direct to the real economy.

The report pointed out that from the perspective of economic fundamentals, liquidity gap, financial stability and other perspectives, the probability of future RRR cuts is still large. At present, China's economic recovery is weak, and the recovery of both consumption and investment is still not obvious. Foreign trade is still under considerable pressure, and we need to continue the loose monetary policy. At the same time, considering the issuance of special national bonds and large-scale issuance of local special bonds, financial institutions are required to increase the allocation of these assets, which will lead to a large liquidity gap and need to be replenished. Maintaining reasonable and abundant liquidity is not only necessary to meet the recovery of the real economy, but also necessary to safeguard the confidence of the financial market.

Wen believes that monetary policy should guide financial institutions to yield 1.5 trillion yuan in profits to the real economy throughout the year. We will further reduce the reserve requirement ratio to release long-term funds, increase the willingness of financial institutions to allocate national bonds, special bonds issued by local governments, and corporate credit bonds, and reduce the issuance cost of bonds. We will improve policy tools and relevant mechanisms for direct access of funds to enterprises, protect market players such as small, medium and micro businesses, speed up the repair of business confidence, and stimulate the potential of domestic demand. We will prevent idle arbitrage and de-materialization of funds, and effectively guide the flow of funds to the manufacturing industry, small, medium-sized and micro enterprises and other necessary sectors.

According to the Research Institute of the Bank of China, the government prefers Banks to lower corporate financing costs through lowering the benchmark deposit interest rate and other means, which is mainly related to the recent increase of capital arbitrage phenomenon, and it is expected that the possibility of lowering the benchmark deposit interest rate in the short term will decrease.

Debt bulls are no longer bullish on stocks

Against this backdrop, agencies see little chance for bond bulls to return, despite a plateau in the bond market after deleveraging in May, especially as equity risk sentiment remains high.

"The bull market in bonds that began in q1 2018 has turned. For the next year to a year and a half, the opportunity for the bond market is very small." Avic Trust macro strategy director Wu Zhaoyin told reporters.

Several Chinese and foreign institutional bond investment managers told reporters that in the future, bond supply will remain high, and the central bank will pay more attention to the prevention of risks and direct to the real economy monetary policy innovation tools. As a result, the space for monetary policy is limited, with short-end interest rates likely to remain around 2 per cent.

Ubs told reporters that the central bank will still cut the MLF (medium-term Lending Facility) interest rate and reserve requirement ratio this year, with the 10-year Treasury yield expected to fall back to 2.8 percent in the third quarter. But as economic activity gradually recovers, yields could climb to 3 per cent by the end of the year.

Current institutions are optimistic about the performance of Chinese stock market in the third quarter. "The early normalisation of the Chinese economy this year provides fundamental support for A-shares." Wu Zhaoyin said.

Year to date, A shares have experienced A decline, rebound, volatility. The Shanghai Composite index closed at 2,984.67 on June 30, down 2.15% for the year. The Shenzhen component index is up 14.97% year-to-date; The chinext index rose 35.60%.

Meanwhile, IPO activity continued to grow compared with the same period last year. A total of 120 companies are expected to list on the A-share market in the first half, raising 139.9 billion yuan, with the number of ipos and the amount raised up 88% and 132%, respectively, from A year earlier, according to the Ernst & Young report. Driven by the technology innovation Board, the Shanghai Stock Exchange has won the global double title with 74 ipos and $15.8bn raised.

In the future, market fluctuations are inevitable. In addition to the influence of the peripheral market, the outbreak may be repeated, and factors such as the interim report, "the external environment may also be turbulent again in the third quarter, but in the long run, it is not enough to change the market trend." Wu zhaoyin said that the New Third Board reform has brought theme dividends to the market, while the theme of Hainan free Trade Port continues to be optimistic.