Hello again Global Impact readers,
You can be forgiven for confusion about what’s going on with the Chinese economy at the moment. News reports, including from the South China Morning Post, trumped the record growth rate in the first quarter compared to a year earlier. But that didn’t reflect actual economic performance since the comparison was against the largest-ever contraction in the Chinese economy. A look at a shorter-term indicator, first quarter growth versus the fourth quarter, showed a sharp slowdown. But that was due in large part to special factors, such as a resurgence in coronavirus infections and its impact on the Lunar New Year holiday in early February. So it, too, didn’t tell the full story.
What can be said is that China’s economic rebound from the coronavirus continued. But the pace of growth in future months and quarters remains uncertain, dependent on a series of factors, some of which are outside the control of policymakers. We need more information but stay tuned. The first data for the second quarter - the official purchasing managers’ indices - will be released next week.
John Carter
Senior Editor, Political Economy How is the Chinese economy doing?
Economic figures can be hard to interpret in the best of circumstances, but no more so than in China in the first quarter this year.
The headline GDP growth figure jumped to 18.3 per cent compared to a year earlier, the largest annual growth rate since data began to be collected in 1993 and signalling the continuation of the strong rebound from the economic damage caused by the coronavirus pandemic last year. But that figure was skewed upward by comparison with the historic 6.8 per cent contraction of the Chinese economy in the first quarter 2020.
Many economists focused instead on the growth in the first quarter compared to the fourth quarter last year. This quarter-over-quarter rate slowed sharply to 0.6 per cent from the 3.2 per cent gain seen in the fourth quarter, possibly signalling a levelling off of growth.
But the quarter-over-quarter growth rate may also misrepresent the state of the economy, given first quarter growth was dampened by the coronavirus outbreak in the northern portion of the country, which caused authorities to restrict citizens from travelling to their hometowns during the Lunar New Year holiday period in early February. Many Chinese abandoned their travel plans, reducing spending during what is usually a prime period for traveling, giving gifts and holding elaborate banquets.
Many analysts argued that the economy would rebound in the second quarter given the lack of coronavirus-related factors holding back growth in the first quarter. However, some analysts warned the expected improvement in consumer spending - as shown by the rise in retail sales in March - would not be enough to keep the economy growing and that further economic support measures were necessary. Moreover, Beijing’s new “dual circulation” economic strategy - which would rely primarily on domestic demand to power growth - might not work as planned given high household debt and weak income growth for most middle class Chinese.
So the outlook for Chinese growth remains somewhat uncertain, as Premier Li Keqiang admitted earlier this month, given that some of the causes of better growth last year may be tapering off.
First, Beijing and local governments have introduced a series of measures to curb property markets in big cities and keep surging housing prices under control. These include limits on the amount of debt that large property developers can hold - the “three red lines.” The housing market has been one of the main drivers of Chinese growth in recent years - not only building the housing, but also furnishing it once completed - so these curbs are expected to put a dent in the growth rate going forward.
Second, Beijing has started to withdraw the economic stimulus it implemented last year to support the coronavirus-hit economy. The government trimmed this year’s budget deficit target as well as the limit for local government bond issues - meaning there will be less money for local governments to spend on infrastructure and other projects. The People’s Bank of China, the nation’s central bank, has refocused its attention to reducing the nation’s high debt level, which rose sharply during the pandemic, but denied that early steps to cut back on monetary stimulus were a sharp reversal of efforts to support the economy. Top financial officials also warned about the risks of asset bubbles forming due to excess US economic stimulus as policy divergence with the US widened. Officials have pledged no sharp “U-turn” in policy, but analysts agree that Beijing will gradually trim support as the year progresses. A former finance minister warned that risks to China’s fiscal situation in the years ago were “severe”.
Thirdly, skyrocketing exports may start to ease in coming months as developed economies - particularly the US and European Union - start their own economic rebounds from the coronavirus and no longer suck in huge amounts of coronavirus related goods - from personal protection equipment to video and audio equipment for the stay at home movement - and increasingly supply themselves.
Beijing set a 2021 growth target of “above 6 per cent”, well below the full-year growth rate of over 8 per cent expected by analysts and the International Monetary Fund (IMF). Some say that growth rate was chosen to acknowledge that this year’s growth was skewed upwards by comparison to 2020 - when growth rose 2.3 per cent - and the 6 per cent figure represents the annualised growth rate Beijing expects to see in the fourth quarter this year, effectively the same growth as in the fourth quarter of 2019, before the pandemic.
There is consensus that the Chinese growth rate will slow as the year progresses - in part due to less favourable base effects - with some seeing growth slowing to 7 per cent in the second quarter. There are projections that the US growth rate - aided by US government economic stimulus - will surpass that of China beginning in the third quarter, but only for a few quarters, with the IMF projecting China growth will easily exceed that of the US for the full year 2022.
China remains the fastest-growing large economy in the world, and so its outlook is the single biggest factor in the outlook for the world economy this year and next. How Chinese growth progresses - and whether Chinese officials get their policy mix right - will go a long way to determine the outlook for the world economy this year and next.
- South China Morning Post, SCMP -
Hello again Global Impact readers,
You can be forgiven for confusion about what’s going on with the Chinese economy at the moment. News reports, including from the South China Morning Post, trumped the record growth rate in the first quarter compared to a year earlier. But that didn’t reflect actual economic performance since the comparison was against the largest-ever contraction in the Chinese economy. A look at a shorter-term indicator, first quarter growth versus the fourth quarter, showed a sharp slowdown. But that was due in large part to special factors, such as a resurgence in coronavirus infections and its impact on the Lunar New Year holiday in early February. So it, too, didn’t tell the full story.
What can be said is that China’s economic rebound from the coronavirus continued. But the pace of growth in future months and quarters remains uncertain, dependent on a series of factors, some of which are outside the control of policymakers. We need more information but stay tuned. The first data for the second quarter - the official purchasing managers’ indices - will be released next week.
John Carter
Senior Editor, Political Economy How is the Chinese economy doing?
Economic figures can be hard to interpret in the best of circumstances, but no more so than in China in the first quarter this year.
The headline GDP growth figure jumped to 18.3 per cent compared to a year earlier, the largest annual growth rate since data began to be collected in 1993 and signalling the continuation of the strong rebound from the economic damage caused by the coronavirus pandemic last year. But that figure was skewed upward by comparison with the historic 6.8 per cent contraction of the Chinese economy in the first quarter 2020.
Many economists focused instead on the growth in the first quarter compared to the fourth quarter last year. This quarter-over-quarter rate slowed sharply to 0.6 per cent from the 3.2 per cent gain seen in the fourth quarter, possibly signalling a levelling off of growth.
But the quarter-over-quarter growth rate may also misrepresent the state of the economy, given first quarter growth was dampened by the coronavirus outbreak in the northern portion of the country, which caused authorities to restrict citizens from travelling to their hometowns during the Lunar New Year holiday period in early February. Many Chinese abandoned their travel plans, reducing spending during what is usually a prime period for traveling, giving gifts and holding elaborate banquets.
Many analysts argued that the economy would rebound in the second quarter given the lack of coronavirus-related factors holding back growth in the first quarter. However, some analysts warned the expected improvement in consumer spending - as shown by the rise in retail sales in March - would not be enough to keep the economy growing and that further economic support measures were necessary. Moreover, Beijing’s new “dual circulation” economic strategy - which would rely primarily on domestic demand to power growth - might not work as planned given high household debt and weak income growth for most middle class Chinese.
So the outlook for Chinese growth remains somewhat uncertain, as Premier Li Keqiang admitted earlier this month, given that some of the causes of better growth last year may be tapering off.
First, Beijing and local governments have introduced a series of measures to curb property markets in big cities and keep surging housing prices under control. These include limits on the amount of debt that large property developers can hold - the “three red lines.” The housing market has been one of the main drivers of Chinese growth in recent years - not only building the housing, but also furnishing it once completed - so these curbs are expected to put a dent in the growth rate going forward.
Second, Beijing has started to withdraw the economic stimulus it implemented last year to support the coronavirus-hit economy. The government trimmed this year’s budget deficit target as well as the limit for local government bond issues - meaning there will be less money for local governments to spend on infrastructure and other projects. The People’s Bank of China, the nation’s central bank, has refocused its attention to reducing the nation’s high debt level, which rose sharply during the pandemic, but denied that early steps to cut back on monetary stimulus were a sharp reversal of efforts to support the economy. Top financial officials also warned about the risks of asset bubbles forming due to excess US economic stimulus as policy divergence with the US widened. Officials have pledged no sharp “U-turn” in policy, but analysts agree that Beijing will gradually trim support as the year progresses. A former finance minister warned that risks to China’s fiscal situation in the years ago were “severe”.
Thirdly, skyrocketing exports may start to ease in coming months as developed economies - particularly the US and European Union - start their own economic rebounds from the coronavirus and no longer suck in huge amounts of coronavirus related goods - from personal protection equipment to video and audio equipment for the stay at home movement - and increasingly supply themselves.
Beijing set a 2021 growth target of “above 6 per cent”, well below the full-year growth rate of over 8 per cent expected by analysts and the International Monetary Fund (IMF). Some say that growth rate was chosen to acknowledge that this year’s growth was skewed upwards by comparison to 2020 - when growth rose 2.3 per cent - and the 6 per cent figure represents the annualised growth rate Beijing expects to see in the fourth quarter this year, effectively the same growth as in the fourth quarter of 2019, before the pandemic.
There is consensus that the Chinese growth rate will slow as the year progresses - in part due to less favourable base effects - with some seeing growth slowing to 7 per cent in the second quarter. There are projections that the US growth rate - aided by US government economic stimulus - will surpass that of China beginning in the third quarter, but only for a few quarters, with the IMF projecting China growth will easily exceed that of the US for the full year 2022.
China remains the fastest-growing large economy in the world, and so its outlook is the single biggest factor in the outlook for the world economy this year and next. How Chinese growth progresses - and whether Chinese officials get their policy mix right - will go a long way to determine the outlook for the world economy this year and next.
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24 April 2021 |
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Hello again Global Impact readers,
You can be forgiven for confusion about what’s going on with the Chinese economy at the moment. News reports, including from the South China Morning Post, trumped the record growth rate in the first quarter compared to a year earlier. But that didn’t reflect actual economic performance since the comparison was against the largest-ever contraction in the Chinese economy. A look at a shorter-term indicator, first quarter growth versus the fourth quarter, showed a sharp slowdown. But that was due in large part to special factors, such as a resurgence in coronavirus infections and its impact on the Lunar New Year holiday in early February. So it, too, didn’t tell the full story.
What can be said is that China’s economic rebound from the coronavirus continued. But the pace of growth in future months and quarters remains uncertain, dependent on a series of factors, some of which are outside the control of policymakers. We need more information but stay tuned. The first data for the second quarter - the official purchasing managers’ indices - will be released next week.
John Carter
Senior Editor, Political Economy
How is the Chinese economy doing?
Economic figures can be hard to interpret in the best of circumstances, but no more so than in China in the first quarter this year.
The headline GDP growth figure jumped to 18.3 per cent compared to a year earlier, the largest annual growth rate since data began to be collected in 1993 and signalling the continuation of the strong rebound from the economic damage caused by the coronavirus pandemic last year. But that figure was skewed upward by comparison with the historic 6.8 per cent contraction of the Chinese economy in the first quarter 2020.
Many economists focused instead on the growth in the first quarter compared to the fourth quarter last year. This quarter-over-quarter rate slowed sharply to 0.6 per cent from the 3.2 per cent gain seen in the fourth quarter, possibly signalling a levelling off of growth.
But the quarter-over-quarter growth rate may also misrepresent the state of the economy, given first quarter growth was dampened by the coronavirus outbreak in the northern portion of the country, which caused authorities to restrict citizens from travelling to their hometowns during the Lunar New Year holiday period in early February. Many Chinese abandoned their travel plans, reducing spending during what is usually a prime period for traveling, giving gifts and holding elaborate banquets.
Many analysts argued that the economy would rebound in the second quarter given the lack of coronavirus-related factors holding back growth in the first quarter. However, some analysts warned the expected improvement in consumer spending - as shown by the rise in retail sales in March - would not be enough to keep the economy growing and that further economic support measures were necessary. Moreover, Beijing’s new “dual circulation” economic strategy - which would rely primarily on domestic demand to power growth - might not work as planned given high household debt and weak income growth for most middle class Chinese.
So the outlook for Chinese growth remains somewhat uncertain, as Premier Li Keqiang admitted earlier this month, given that some of the causes of better growth last year may be tapering off.
First, Beijing and local governments have introduced a series of measures to curb property markets in big cities and keep surging housing prices under control. These include limits on the amount of debt that large property developers can hold - the “three red lines.” The housing market has been one of the main drivers of Chinese growth in recent years - not only building the housing, but also furnishing it once completed - so these curbs are expected to put a dent in the growth rate going forward.
Second, Beijing has started to withdraw the economic stimulus it implemented last year to support the coronavirus-hit economy. The government trimmed this year’s budget deficit target as well as the limit for local government bond issues - meaning there will be less money for local governments to spend on infrastructure and other projects. The People’s Bank of China, the nation’s central bank, has refocused its attention to reducing the nation’s high debt level, which rose sharply during the pandemic, but denied that early steps to cut back on monetary stimulus were a sharp reversal of efforts to support the economy. Top financial officials also warned about the risks of asset bubbles forming due to excess US economic stimulus as policy divergence with the US widened. Officials have pledged no sharp “U-turn” in policy, but analysts agree that Beijing will gradually trim support as the year progresses. A former finance minister warned that risks to China’s fiscal situation in the years ago were “severe”.
Thirdly, skyrocketing exports may start to ease in coming months as developed economies - particularly the US and European Union - start their own economic rebounds from the coronavirus and no longer suck in huge amounts of coronavirus related goods - from personal protection equipment to video and audio equipment for the stay at home movement - and increasingly supply themselves.
Beijing set a 2021 growth target of “above 6 per cent”, well below the full-year growth rate of over 8 per cent expected by analysts and the International Monetary Fund (IMF). Some say that growth rate was chosen to acknowledge that this year’s growth was skewed upwards by comparison to 2020 - when growth rose 2.3 per cent - and the 6 per cent figure represents the annualised growth rate Beijing expects to see in the fourth quarter this year, effectively the same growth as in the fourth quarter of 2019, before the pandemic.
There is consensus that the Chinese growth rate will slow as the year progresses - in part due to less favourable base effects - with some seeing growth slowing to 7 per cent in the second quarter. There are projections that the US growth rate - aided by US government economic stimulus - will surpass that of China beginning in the third quarter, but only for a few quarters, with the IMF projecting China growth will easily exceed that of the US for the full year 2022.
China remains the fastest-growing large economy in the world, and so its outlook is the single biggest factor in the outlook for the world economy this year and next. How Chinese growth progresses - and whether Chinese officials get their policy mix right - will go a long way to determine the outlook for the world economy this year and next.
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China’s booming GDP masks millennial ‘despair’ over personal prospects
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Young Chinese are using social media platforms like Bilibili to voice despair over rising house prices, widening inequality and the price of everyday goods | | | • | The growing frustration about social mobility highlights a ‘serious divergence’ between China’s fast-growing economy and the life satisfaction of citizens
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As vlogger Ning Nanshan stares down the camera and launches into a lecture about China’s push for technological self-reliance, a flood of “bullet comments” begins floating across the screen. “Go our own way and corner the rest of the world!” says one of the comments on Bilibili, a popular video-sharing site that allows viewers to post messages in real time. Read more
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China’s economy may expand by 9 per cent in 2021, helping to overtake US sooner
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China was the first major economy to show a recovery from the damage caused by the coronavirus pandemic in 2020, largely due to a series of stimulus measures | | | • | Nomura and China International Capital Corporation put China’s gross domestic product growth for 2021 at 9 per cent
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China’s economic growth could reach as high as 9 per cent next year, and its rapid rebound from the coronavirus pandemic may help the economy overtake the US to become the world’s largest later this decade, analysts said. But Beijing is likely to roll back some of its stimulus measures used to offset the coronavirus damage amid concerns over its record-high debt level, they added. Read more
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China faces long march to rein in ballooning wealth gap
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China’s rapid growth over the past four decades has lifted living standards, but coincided with a widening wealth gap | | | • | President Xi Jinping says China must address the issue more seriously, indicating renewed focus over the next 15 years
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China will need to reform tax, welfare and labour policies if it is to reign in inequality and create “common prosperity” for all by 2035, economists say. Following the Central Committee’s fifth plenum in late October, President Xi Jinping said doubling the size of China’s economy by 2035 was within reach, but the country must distribute the fruits of development more fairly. Read more
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China pledges largest-ever economic rescue package to offset virus damage
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Premier Li Keqiang confirmed the 4 trillion yuan (US$559 billion) worth of cost cuts for the country’s struggling factories and merchants on Thursday | | | • | The combined cuts in business costs will be carried out on top of 2 trillion yuan in additional fiscal spending and government bond issuances
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China has pledged a package of 4 trillion yuan (US$559 billion) worth of cost cuts for the country’s struggling factories and merchants in 2020, the largest economic rescue plan in its history, in an enhanced effort to save jobs that were put at risk by the coronavirus outbreak, Premier Li Keqiang confirmed on Thursday. The combined cuts in business costs, which include tax exemptions, lower bank interest rates and waived contributions to social welfare funds as well as reduced prices for utilities such as electricity, will be carried out on top of 2 trillion yuan in additional fiscal spending and government bond issuances. Read more
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To keep track of the latest global news developments, follow our daily coverage on our website, focus on stories about China here or on the economy here.
In our next issue, we’ll look at the controversy surrounding the Beijing Winter Olympics scheduled to be held in and around China’s capital city in February 2022.
We welcome your feedback. Email me at globalimpact@scmp.com or tweet me at @scmpeconomy.
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John Carter
Senior Editor, Political Economy
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This newsletter is created and catered for the global news reader. Each issue will feature a news story originating from China that carries a significant macro impact on the rest of the world.
We hope to share with you a broader perspective on the emerging topics shaping our world and that we feel are revolutionising the way we understand China.
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