China’s growth figures betray declining momentum


China saw a record 18.3% year-over-year growth in the first three months of 2021.

But the most telling figure could be the economy’s 0.6% expansion from the previous quarter – a historically slow pace that suggests momentum is slowing, a year after the coronavirus resumed in China.

In the 12 months since its unofficial reopening – authorities lifted the lockdown on Wuhan, the center of origin of the coronavirus, on April 8 last year – the world’s second-largest economy has defied expectations.

For much of 2020, the export sector led the way, with Chinese factories producing large volumes of medical protective equipment and work-from-home computing equipment for a locked-down world. And as authorities eradicated the virus from the home, consumers have gradually started to spend again.

The result was a full-year gross domestic product growth of 2.3%, making China the only major economy in the world to grow in 2020 marked by a pandemic.

Now, however, signs of slowing down are starting to appear. This latest quarterly GDP figure marks the slowest growth rate in the past decade, with the exception of the coronavirus-hit first quarter of 2020, said Julian Evans-Pritchard, an economist at Capital Economics. It signals a slowdown in numbers in the industrial, construction and service sectors.

Economists at JP Morgan, quoting the figure quarter on quarter, lowered their growth forecast for the full year to 9.3% from 9.5%.

“The domestic economic recovery is not yet solid,” said Liu Aihua, spokesperson for the National Bureau of Statistics on Friday, highlighting uncertainties in the manufacturing sector that have hampered investment and rising unemployment among migrant workers and workers. young graduates.

Ms Liu said the number of migrant workers who traveled to cities for work in the quarter was around 2.5 million fewer than before the coronavirus, reflecting the struggles of their main employers: the services and small businesses.

Meanwhile, the unemployment rate for workers aged 16 to 24 was 13.6% at the end of March, up 0.3 percentage points from a year earlier and much higher than the overall urban unemployment rate of 5.3%, Ms. Liu said.

Some of the other monthly economic indicators released by Beijing on Friday are also below expectations, slowing more sharply than expected.

Industrial production for March was up 14.1% from a year earlier, down from the 35.1% pace from January to February, and lower than forecast. Growth in investment in fixed assets also slowed to 25.6%.

“The underlying growth trend is expected to continue to slow,” Commerzbank senior economist Hao Zhou said on Friday. Tommy Xie, economist at OCBC Bank, pointing to the average growth rate of 5% for the first quarters of 2020 and 2021, says the Chinese economy has still not regained its pre-pandemic growth potential of around 6% .

There were bright spots. Long-lagging retail sales rose 34.2% in March from a year earlier – better than expected – and accelerated month-over-month.

Ms. Liu, the government spokeswoman, said consumption in the restaurant industry rebounded to pre-virus levels for the first time in March. Despite weak labor market pockets, she said, “the continued economic recovery as well as improved labor incomes and the labor market will further increase Chinese consumption.

Beijing resident Shen Lu recently joined the retail recovery, taking her 5-year-old daughter to Disneyland in Shanghai in April – her first trip out of the city since the pandemic first exploded there. is over a year old.

Ms. Shen says she plans to travel again during the five-day Labor Day vacation that begins on May 1, and possibly throughout the summer – “revenge trip,” to make up for lost time.

“We have cut a lot of spending over the past year – on entertainment, children’s playgrounds, and travel – due to the coronavirus pandemic,” Ms. Shen said. “Now, with the vaccine rollout and global warming, we can finally get out and travel.”

Other economists have argued that the 0.6% quarter-on-quarter economic expansion simply reflects a natural decline in growth after last year’s strong post-pandemic recovery.

“The Chinese economy has returned to normalization,” said Serena Zhou, Hong Kong-based economist for Mizuho Securities. She said she expects retail sales and exports to support China’s economy in the first half of the year, before exports start to slow in the second half as factories in other countries return to service. . The fiscal stimulus in the United States could boost Chinese exports – although they may also exacerbate producer inflation, which has started to put pressure on China in recent weeks.

Last week, Beijing said producer prices in March were up 4.4% from a year earlier, the fastest rate of increase in more than two years, while prices at consumption were up 1.6% from the previous month.

In interviews, Chinese exporters complained about falling profits as commodity prices soared and global shipping costs remain high. As the order volume has reached pre-coronavirus levels, some exporters say profits have fallen by more than 30% this year.

On Friday, Ms. Liu from the statistics office played down inflationary concerns, noting that pork prices, a major driver of consumer inflation, continued to fall.
Source: Dow Jones


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