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China's financial progress indicators are "one-sided," says analyst

A worker cleans cars at a Ford dealer in Beijing on July 6, 2018.

GREG BAKER | AFP | Getty Images

China's economic growth indicators are biased and point to possible downside risks for the country in the second half of 2020 as it tries to recover from the coronavirus pandemic, an analyst said on Thursday.

"The Chinese deserve a lot of recognition on Covid. They have certainly blocked much of the country," said Andrew Collier, managing director of Orient Capital Research, a Hong Kong-based research company.

"Although they may have triggered the virus, they were pretty good at suppressing it. That is the advantage of an authoritarian regime," he told CNBC's Squawk Box Asia.

The corona virus was first reported in China late last year, causing the government to shut down more than half of the country as part of its efforts to contain the virus. China has since been trying to strengthen its soft power by trying to take the lead in a global response to the public health crisis as US infections increase and those in the Asian country decrease.

Recent data showed that China's retail sales in June were down 1.8% year-on-year, much worse than the 0.3% growth analysts forecast in a Reuters survey. This happened after a decline of 2.8% in May.

But that was still better than sharp drops in the rest of the world, Collier said.

"The problem with the stimulus measures and economic indicators is that they are very one-sided. They are very focused on selling online and also on building the infrastructure," he said.

Steel and iron ore production in China was strong, "but nobody can find out exactly where all these metals are going," he said, as auto sales were rather weak, even when the raw materials were used to build infrastructure and real estate.

"There is a suspicion that there are many stocks," said Collier.

He said US-China tensions are "worrying" as President Donald Trump appears to be using Secretary of State Mike Pompeo to resume hostility to Beijing as the president falls behind in the polls. But investors are likely to shake this off, Collier said.

"It is true that Trump is a bit of a paper tiger at this point … much of what he does is lightning quicker than actual changes, and it doesn't look like they are scripting US trade and rewrite China So there will probably be more noise than it actually is, "said Collier.

Senior US and Chinese officials are reportedly expected to review the implementation of their Phase 1 trade agreement next week.

Collier said he would keep an eye on actual supply and demand.

"The bigger problem is whether oil and steel and iron ore stocks are related to actual demand, or if that just stimulates the pump to keep the economy going," he said.

If there is less demand than supply for such goods, the demand for goods could decrease in the further course of 2020. But there is also an advantage if retail continues to do better than the rest of the world, he said.

"There is likely to be some downside risk in the second half of the year, but on the other hand, China is doing better than the rest of the world in terms of Covid," said Collier.

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