China’s economy on a recovery path

CHINA reported another set of heartening news early this week that showed the country’s economic recovery was gaining momentum last month.

Its virus-bitten economy had continued its slow recovery in May, as shown by major economic data released by the National Bureau of Statistics (NBS) on Monday.

Industrial output, consumption and investment all improved from the previous month.

Factory activities in May continued to pick up, with the value-added industrial output – an important economic indicator – rising 4.4% year-on-year (y-o-y). May’s industrial output growth was higher than April’s 3.9% growth.

Other key economic indicators showed signs of activity recovery, or rebound, or smaller contraction on the back of supporting policies from the government to spur growth and consumption.

For example, China’s retail sales of consumer goods, a major indicator of consumption growth, declined 2.8% y-o-y in May, compared to a fall of 7.5% in April.

The central government this year has identified domestic consumption as one of the primary driving forces for the Chinese economy.

“From the activity data published by the NBS, it is evident that the Chinese economy is recovering, but slowly, ” said ING’s Greater China chief economist Iris Pang in her comment on Monday after the data were released.

She noted that most of the industrial growth was in advanced technology and equipment, which grew 8.9% y-o-y and 9.5% y-o-y, respectively. Industrial robot production increased by 16.9% y-o-y.

“Infrastructure activity led to growth in the production of construction machinery, which increased by 62.1% y-o-y, ” she wrote.

She also observed that retail sales had shrunk less, contracting 2.8% y-o-y in May, compared to a contraction of 7.5% y-o-y in April.

The latest set of monthly economic figures, though not very exciting, is certainly a piece of encouraging news for Beijing’s planners.

The official news agency Xinhua said in its commentary on Tuesday: “These clear and positive signals have demonstrated that the impact of Covid-19 on China’s economy is only temporary, and China is capable of securing a stable, healthy and sustainable economic development.”

China was the first country in the world to be hit by the novel coronavirus outbreak, when the first patients were reported in Wuhan at end-December last year. Wuhan was locked down in January.

While Beijing had taken harsh and decisive measures to contain the spread of the virus by mid-March, the rest of the world is still suffering from the scary pandemic that has claimed about half a million lives and saw eight million infections.

“At a time when the world has been hit hard by the Covid-19 pandemic, China’s steady economic resumption is injecting confidence and impetus into the gloomy global economy, ” Xinhua added in its commentary.

The May data also showed that the service sector is normalising.

Service production index turned positive in May for the first time since the Covid-19 epidemic started and grew by 1% on a yearly basis. This compared with a 4.5% decline in April.

“This shows that the service sector is on path to recovery, driven by robust growth of the information technology, financial and the property sectors, ” China Daily reported, quoting NBS’ spokesman Fu Linghui as explaining.

Fu said the economic data in May were largely in line with expectations as business resumption continued, production and demand improved and employment and prices remained stable.

“The economy continued to gather momentum and growth has been supported by the rapid development of the digital economy, online retail sales and high-technology manufacturing, ” he said.

While major economic indicators continued to improve in May, they were still lower than those of the same period last year.

“This means that business activities have not yet returned to the normal level, ” Fu said.

As Covid-19 pandemic continues to have negative impact on the global economy, China is not spared of this ill fate. Fu said China will continue to face external uncertainties.

“China’s economic recovery is still under pressure and it requires more efforts to bring the economy back to the path of normal growth, ” Fu said.

However, some foreign economists interviewed by Xinhua expressed confidence in the Chinese economy.

Deutsche Bank chief economist Michael Spencer predicted China’s economy could have a “very impressive” recovery and growth, after reading the May economic data.
Jeffrey Sachs, a renowned economics professor at Columbia University and a senior United Nations adviser, told Xinhua that China will see an economic rebound in the second quarter.

Their confidence is stemmed from the strategies employed by Beijing to spur economic growth.

Last month, Premier Li Keqiang told China’s annual national legislative session that strategies for growth will centre on creating employment, energising the market, stimulating demand and achieving stable growth.

Investor confidence in China is also supported by January-May 2020 economic data.

There was a 5.9% month-on-month growth in fixed-asset investment in May. Due to the growth in May, January-May fixed-asset investment shrank 6.3% y-o-y after diving 10.3% y-o-y in April.

According to Pang of ING, Covid-19 has boosted China’s investment in pharmaceutical and public health industries.

“The only investment that grew in May not related to Covid-19 was advanced technology, telecommunication and other electronic equipment, which could be a result of China pushing itself to be more self-reliant on advanced technology, ” Pang wrote in her analysis.

China’s strong and effective policies will help place the country on the firm footing to recovery, Xinhua opines.

Premier Li’s government work report in May stated China will pursue more proactive and impactful fiscal policy, issue one trillion yuan of government bonds for Covid-19 control to release more funds for companies and further reduce corporate tax and fees by over 2.5 trillion yuan.

On the monetary front, China will cut banking reserve requirement ratio and interest rates to support the real economy.

“More economic activity resumed last month as China brought its virus outbreak under control. The economy also got a boost from government policies that expanded infrastructure investment and measures that offered relief to hard-hit businesses, ” commented Caixin, an established business and economic news portal in China.

While monitoring closely the development of Covid-19, China is aggressively pushing for various economic plans and infrastructure projects.

For example, the Hainan Free Trade Port has inked 35 key investment projects, including eight foreign-funded ones, according to Xinhua.

On Monday, the 127th China Import and Export Fair, or Canton Fair, kicked off online in Guangdong Province.

However, with the world still facing Covid-19 pandemic and Beijing is now hit by new Covid-19 infections, there are challenges and risks ahead for China’s economic recovery.

“Headwinds to the recovery lingered, with overseas demand remaining sluggish as the pandemic continued to spread around the world, ” Caixin said.

Noting China is still facing high unemployment after Covid-19, it said a survey last month showed that urban unemployment rate in 31 major cities rose to 5.9% – the highest since 2013.

China Daily reported that officials and economists have warned about possible economic headwinds ahead as the threat of the novel coronavirus still remains after Beijing reported a new cluster of local Covid-19 infections.

The new virus attack in Beijing may further complicate the economic outlook, although generally there is confidence this could come under control as local officials have acted speedily.

ING said it is keeping its GDP forecasts for China unchanged. China’s economy in the first quarter contracted by 6.8% y-o-y.

Pang wrote: “We are keeping our GDP forecasts unchanged due to the confirmation in these (May) figures of the slow recovery of the Chinese economy. Our forecasts for GDP are -3.1% y-o-y for second-quarter 2020 and -1.5% for full-year of 2020.”

Source: The Star

Investor
Scroll to Top

Yes, I would like to know more updates and details on PE Group products and services at the earliest notification. Please put me on yourpremier priority list .

Proposal