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China’s economy seeing mixed recovery

The world’s first country to undergo lockdown due to the pandemic is seeing some recovery driven by industrial output, but consumer demand remains weak.
 A China World Mall sign is seen near the CCTV headquarters in Beijing's central business district, 16 July 2020.
A China World Mall sign is seen near the CCTV headquarters in Beijing's central business district, 16 July 2020.

China’s economy returned to growth in the second quarter, beating expectations, as the first major economy to emerge from a pandemic-induced economic slump.

Gross domestic product grew 3.2% year-on-year, China’s National Bureau of Statistics reported Thursday, turning the tide after a 6.8% decline in the first quarter. Overall, the world’s second-largest economy contracted 1.6% in the first half compared with a year ago.

Indicators in the data release show a mixed recovery, with industrials driving the growth while retail sales volume is still lower than the same period last year.

Industrial production grew 4.4%, led by value-added products in high-tech manufacturing and equipment manufacturing, such as electronics and machinery.

Retail sales — an indication of consumer sentiment — fell by 3.9% in the second quarter, a sign that consumers are still cautious about spending.

“I had expected June retail sales to return to a small positive growth. It just shows how uneven the recovery has been the past three months,” said Tommy Wu, lead economist at Oxford Economics, a research firm.

Because China was the first country to undergo strict lockdowns and with most cities reopened by early April, the country’s GDP readings are being closely watched for early signs of global economic recovery.

“I would expect economic recovery, not just for China but all the countries reopening, will have a very strong rebound in the first stage, especially in the industrials because you can restart production [and] get workers to come back. That’s the easy part,” Wu said.

The challenge, he said, is in getting consumers to spend at similar levels again, because the risk of COVID-19 infection is still very real. Following the reopening of China’s cities, outbreaks had been reported in the northeastern city Shulan in May and in Beijing as recent as last month.

He added that while real disposable income increased, household consumption did not increase. Restrictions on travel and business reopening in the three months leading to June had a bigger dampening effect on consumer spending.

“In the first half of the year, China’s economy gradually overcame the adverse impacts of the epidemic,” said China’s National Bureau of Statistics spokesperson, Liu Aihua, in a press conference Thursday, but she added that losses caused by the pandemic still need to be recovered and the recovery faces risks from external challenges amid the ongoing pandemic globally.

Singapore, which released its quarterly GDP numbers earlier this week, slumped into a recession in its second quarter, with the biggest quarterly decline on record. The Bank of Japan said Wednesday that it expects the Japanese economy to shrink 4.7% in 2020 due to the pandemic. In the UK, recovery is gradual and slight, where the latest GDP data showed that the economy expanded 1.8% in May, lower than the expected 5.5% growth.

Wu said that China’s economy is expected to stay in positive territory in the second half of the year, with a forecast of 2.5% full-year GDP growth.

Alexis See Tho (Alexis.SeeTho@aicpa-cima.com) is an FM magazine associate editor.