With Covid-19 under control, China’s economy is growing

BEIJING — With most of the world still grappling with the coronavirus pandemic, China is once again showing that a rapid economic rebound is possible when the virus is firmly under control.

China’s economy jumped 4.9% in the July-September quarter from the same months last year, the country’s National Bureau of Statistics said on Monday. This strong performance brings China back almost to the growth rate of around 6% that it showed before the pandemic.

Many of the world’s major economies quickly emerged from the depths of a contraction last spring, when shutdowns led to a sharp drop in output. But China is the first to register growth that significantly exceeds what it was at the same time last year. The United States and other countries are also expected to report an increase in the third quarter, but they are still lagging or just catching up to pre-pandemic levels.

China’s lead could widen further in the coming months. There is almost no local transmission of the virus now, while the United States and Europe face another accelerating wave of cases.

China’s vigorous expansion means it is set to dominate global growth – accounting for at least 30% of global economic growth this year and in years to come, Justin Lin Yifu, cabinet adviser and honorary dean of the National Peking University School of Development, said at a recent government press conference in Beijing.

Chinese companies account for a larger share of global exports, making consumer electronics, personal protective equipment and other goods in high demand during the pandemic. At the same time, China is now buying more iron ore from Brazil, more corn and pork from the United States, and more palm oil from Malaysia. This partly reversed the fall in commodity prices last spring and lessened the impact of the pandemic on some industries.

Yet China’s recovery has helped the rest of the world less than in the past because its imports have not grown as much as its exports. This pattern has created jobs in China but dampened growth elsewhere.

China’s economic recovery has also depended for months on huge investments in highways, high-speed rail lines and other infrastructure. And in recent weeks, the country has seen the start of a recovery in domestic consumption.

The wealthy and residents of the export-oriented coastal provinces were the first to start spending money again. But activity is now picking up even in places like Wuhan, the city in central China where the novel coronavirus first emerged.

“You had to wait in line to get into many restaurants in Wuhan, and for Wuhan restaurants that are popular on the Internet, the wait is two or three hours,” Wuhan resident Lei Yanqiu said at the start. thirties.

George Zhong, a resident of Chengdu, the capital of western China’s Sichuan Province, said he had traveled to three provinces in the past two months and was actively shopping when he was at home. “I am not spending less than in previous years,” Mr. Zhong said.

China’s economic growth over the past three months was slightly below economists’ forecasts of 5.2% to 5.5%. But the performance was still strong enough that stock markets in Shanghai, Shenzhen and Hong Kong rose in early trading on Monday.

The broadening of the country’s recovery can also be seen in the September economic statistics, which were also released on Monday. Retail sales rose 3.3% last month from a year ago, while industrial production rose 6.9%.

China’s model of restoring growth may be effective, but may not be attractive to other countries.

Determined to keep local transmission of the virus to near zero, China has resorted to comprehensive cellphone tracking of its population, week-long lockdowns of neighborhoods and cities, and costly mass testing in response to the smaller outbreaks.

China’s rebound also comes with some weaknesses, in particular an increase in overall debt this year by an amount equal to one-third of the economy’s overall output. Much of the additional debt is either local government and public enterprise borrowing to pay for new infrastructure, or mortgages taken out by households and businesses to pay for apartments and new buildings.

The government is aware of the risk of letting debt build up quickly. But curbing new credit would hurt real estate activity, a sector that accounts for up to a quarter of the economy.

Another risk to China’s recovery is its heavy reliance on exports. The surge in exports over the past three months, along with falling commodity import prices, have accounted for a significant portion of economic growth. Exports still represent more than 17% of the Chinese economy, more than double the proportion they represent in the American economy.

Chinese leaders recognize that the country’s exports are increasingly vulnerable to geopolitical tensions, including moves by the Trump administration to unravel U.S.-China trade relations. Changes in global demand could also threaten exports as the pandemic hits overseas economies.

Xi Jinping, China’s top leader, has increasingly emphasized self-reliance, a strategy that calls for the expansion of service industries and innovation in manufacturing, while allowing residents to spend more.

“We must make consumers the mainstay,” Qiu Baoxing, a cabinet adviser and former vice minister of housing, said at the press conference in Beijing. “By focusing on inner circulation, we are actually building our own resilience.”

But empowering consumers has long been a challenge in China. Under ordinary circumstances, most Chinese are forced to save for education, health care and retirement due to a weak social safety net. The economic downturn and the pandemic have led to job losses, compounding the problem, especially for low-income people and rural residents.

Beijing’s approach to helping ordinary Chinese during the downturn has been to give companies tax refunds and large loans from state-owned banks, so companies don’t need to lay off workers. But some economists argue that Beijing should instead distribute coupons or checks to help the country’s poorest citizens more directly.

Millions of Chinese migrant workers endured at least a month or two of unemployment in the spring as factories were slow to reopen after the outbreak. Young Chinese have found themselves dipping into their savings to eat or taking second jobs to make up for reduced wages.

But Chinese government economists are reluctant to provide direct payments to consumers. They say the government’s priorities are investment-led growth and measures to improve productivity and quality of life, such as digging new sewage systems or adding elevators to three million old apartment towers that lack it.

“We’ve seen a lot of suggestions to increase consumption, but the main thing is to get people rich first,” said Yao Jingyuan, a former chief economist at the National Bureau of Statistics who is now a policy researcher for the National Bureau of Statistics. firm.

Western governments have experimented with providing extra-large unemployment checks, one-time payments and even subsidized restaurant meals. These payments were intended to help families maintain a minimum standard of living during the pandemic – which in turn fueled demand for imports from China.

The widening trade surplus – in which export growth outpaced import growth – accounted for 0.6 percentage points of economic growth of 4.9%, an official said on Monday. Consumption and investment in China accounted for the rest.

“Overall, China’s economy was mainly driven by domestic demand,” Liu Aihua, a spokesperson for the National Bureau of Statistics, told a news conference in Beijing.

But Michael Pettis, professor of finance at Peking University, said that as people in other countries supported by government grants continue to turn to China for products during the pandemic, “we’re going to see a resurgence of trade disputes, and not just the United States”. -China, but global.

Liu Yi and Amber Wang contributed research.