The world changed dramatically in January 2020 with the realisation of the seriousness of the coronavirus outbreak and its impact on lives worldwide. The virus didn't recognise national boundaries and wreaked havoc on the entire global economy. But Beijing's timely and robust steps to contain the outbreak, coupled with massive government financial support, allowed the Chinese economy to lead the global recovery from the damage caused by the pandemic. Going forward, though, the outlook for the economy now remains uncertain, given the resurgence of the virus and a series of other economic challenges.
Rising from the ashes: China stages rapid recovery from coronavirus
In early 2020, there was considerable discussion about the continuing slowdown in the Chinese economy during 2019 and whether growth would be fast enough in 2020 to achieve the Chinese Communist Party's goal of doubling the size of the economy over the past decade.
On January 18, China announced that its economy had grown 6.1 per cent in 2019 (since revised down to 6.0 per cent), the lowest growth rate since 1990, when political turmoil depressed the economy. Growth in the fourth quarter of 2019 was 6.0 per cent, tied for the lowest quarterly growth rate since records began.
But only a few days later, the economic outlook changed dramatically, making 2019 look like a banner year.
Throughout January, there were an increasing number of stories and rumours at that point about a mysterious "pneumonia" in the central Chinese city of Wuhan.
On January 23, China locked down Wuhan, a city of 11 million, to contain the spread of the highly contagious and deadly "novel coronavirus," as it was then called (it was not until March that the World Health Organization declared a global pandemic).
The shuttering of Wuhan lasted 76 days, and along with the closures of a dozen other cities in Hubei province, the measures eventually affected 60 million people.
The practice was labelled draconian at the time, but it worked. Studies found that the lockdowns helped reduce the spread of the disease globally. While some countries adopted lockdowns of their own, experts said they would not work everywhere.
China’s lockdowns pummelled the domestic demand and production in the short run, with the economy contracting by 6.8 per cent in the first quarter, the first economic reversal since 1976 at the end of the Cultural Revolution. The central government sprang into action to offset the damage caused by the pandemic, relying on its old recovery playbook that focused on major infrastructure spending and a loose monetary policy to boost growth. Beijing also abandoned its GDP growth target for the year.
Even as the report on first quarter GDP was released in mid-April, the economy was already starting to show signs of a comeback, as some had predicted.
GDP grew by 3.2 per cent in the second quarter on the back of stronger industrial production supported by strong government spending, becoming the first major economy to rebound from the pandemic. While some economists expressed reservations about the reported strength of the rebound, those doubts were put to rest in the third quarter, when growth continued to accelerate.
With other major industrial nations struggling to contain the virus and resume economic growth, Chinese exports surged, as it provided not only the masks and protective gear needed to combat the pandemic but also the consumer electronics like computers and TVs in high demand because of the large number of employees around the world working from home. China's role as "factory of the world" was reinforced, casting aside worries about economic decoupling that were prevalent only a few months earlier.
China is expected to be the only major economy in the world to post growth in 2020, with the fourth quarter growth rate in line with that of a year earlier, before the pandemic. Beijing trumpeted both its control of the virus and its rapid economic recovery as vindication for its centrally controlled economic model.
Coupled with the contraction in the US economy in 2020, China's rebound meant its economy was that much closer to becoming the largest in the world.
But many challenges remain.
Overcoming the US restrictions on technology has become a major policy priority for 2021. The recovery remains unbalanced, with consumer spending, especially on services, remaining weak due to the lingering effects of the economy. And unemployment remains a problem despite the decline in the official jobless rate, with an increasing number of university graduates having to take menial jobs, such as couriers, when they can find jobs at all. And a record number of new graduates this year will be a further challenge to Beijing policymakers.
And a year after the initial coronavirus outbreak, authorities locked down cities in northern China this January, raising questions about the outlook for growth in the first quarter. Train travel during the Lunar New Year in February was down 70 per cent from a year earlier, raising concerns about a sharp drop in consumer spending during the holiday season, when urban workers traditionally travel to their hometowns and spend large amounts on travel, gifts and banquets.
Chinese consumers still spent around 821 billion yuan (US$127 billion) on shopping and dining during this year’s Spring Festival holiday, an increase from 2020 but still below the amount in 2019, which was over 1 trillion yuan.
But the latest virus outbreak has already hit the economy. In January, the International Monetary Fund downgraded slightly its forecast for Chinese growth this year to 7.9 per cent, but it is still expected to lead the world in 2021.