China’s GDP rebounds in Q2, leads world in economic recovery from epidemic

By GT staff reporters Source: Global Times Published: 2020/7/16 22:06:30

Q2 GDP foreshadows steady rebound despite lingering risks: analysts

A China-Europe freight train enters China from Erenhot Port, North China's Inner Mongolia Autonomous Region on July 1. Photo: cnsphoto

 China emerged on Thursday as the leader in the race among countries to get their economies back on track from the devastating pandemic that continues to ravage through many parts of the world.

The country's economy grew 3.2 percent in the second quarter, reversing from a 6.8-percent contraction in the first quarter, official data showed, underlying the resilience deeply rooted in China's economy amid a global freefall, when the coronavirus pandemic has plunged most major economies into a near standstill.   

More importantly, the rebound foreshadows a steady trajectory for sustained recovery in the world's second-largest economy going forward, despite lingering challenges and risks, as the country effectively reined in recent resurgences of the virus and is ready to open up more businesses, analysts said. 

The unexpected GDP data coming out of China also highlighted the initial success of China's nuanced approach in handling the pandemic and restarting its economy, which stands in stark contrast to that of the US, where officials appear more prone to finger-pointing and reopening the economy prematurely without stopping the virus, analysts noted.

Initial success 

In the second quarter, China's GDP expanded by 3.2 percent from the same period last year and 11.5 percent from the first quarter of the year, according to data released by the National Bureau of Statistics (NBS) on Thursday. The rebound beats most market expectations and makes China the first among major economies to return to growth since the pandemic.

"Overall, China's economy gradually overcame the negative impact of the epidemic in the first half of the year and economic operations are entering a trend of restorative growth and steady recovery," Liu Aihua, spokesperson for the NBS, told a press conference in Beijing.

The unexpected recovery in the second quarter did not come easily. In the second quarter, while much of the country returned to work - marked by the lifting of the lockdown in Wuhan, Central China's Hubei Province in early April, many strict anti-virus measures remained in place that continued to hamstring business resumption. The country also faced two resurgences of the virus in some cities in Northeast China in May and in Beijing in June. Meanwhile, the virus continued to spread across the globe, seriously disrupting global trade and commerce.

"China's quick rebound in its GDP growth pace in the second quarter is both reasonable and unexpected," Lu Ting, China chief economist at Japanese financial services group Nomura, told the Global Times on Thursday, pointing to the success of China's viral control measures as well as challenges considered to be the "most serious in decades."

The strong improvement was largely supported by a confluence of positive factors, from the country's effective epidemic control mechanisms to resilient economic fundamentals and efficient macro policies, officials and analysts said.

All three main growth drivers improved significantly, although persistent sluggishness remains. Retail sales dropped 3.9 percent year-on-year in the second quarter but that's an improvement of 15.1 percentage points from the first quarter. Decline in fixed-asset investments in the first half of the year narrowed 13 percentage points from the first quarter. Decline in trade narrowed 6.3 percentage points in the second quarter. 

"The quick rebound was possible because China was able to the contain the virus relatively quickly, China has a much more diverse industrial network as fiscal and monetary policies were efficiently put in place," Cao Heping, a professor of economics at Peking University, told the Global Times on Thursday, noting that the epidemic brought a "supply side shock" rather than a "demand side shock, which is much harder and takes more time for recovery." 

Photo: GT

Lingering challenges

However, despite the rebound in the second quarter, the Chinese economy still shrank by 1.6 percent year-on-year in the first half of the year, underscoring the massive losses inflicted by the pandemic. Officials and experts also warned of lingering challenges and risks for the Chinese economy going forward.

For starters, all three main growth drivers - consumption, investment and export - are all still on the decline, heavy losses inflicted by the epidemic have yet be remedied and external risks are on the rise with the virus continuing to spread across the world, Liu pointed out during the press conference. Export, which remains a main growth driver despite declining contributions to GDP growth, in particular, could face serious pressure, analysts warned.

"It's safe to say the biggest challenge for China's recovery is the external environment," Guan Tao, chief global economist at BOC International (China) Co and a former senior official at the State Administration of Foreign Exchange, told the Global Times on Thursday. "Falling overseas demand will inflict huge damage upon China's GDP growth." 

The WTO said in April that global trade of merchandise could fall as much as 32 percent this year with the possibility of a 24 percent increase in 2021. The IMF also said in the latest World Economic Outlook that global output could fall 4.9 percent in 2020 before returning to a growth rate of 5.4 percent in 2021.

Still, analysts argue that with a massive domestic demand, sufficient room for fiscal and monetary policies, and further progress in resumption of economic activities, China will be able to manage the risks and sustain a positive recovery.

"The fundamentals of the Chinese economy remain resilient, if more fiscal and monetary policies are put in place, I think there is no impediment at all that the annual GDP growth will reach 3 percent in 2020," Cao said. Guan also added that even if the recovery doesn't appear to be "a straight upward line, it will still be upward."

In what could be more of a boost to economic recovery, Chinese officials announced theaters, which have been closed so far this year, will be open in low risk regions across the country starting from Monday. Officials also announced earlier this week that restrictions on inter-provincial and inter-city tour groups could be relaxed.

US in the spotlight

With the world's second-largest economy on a steady recovery, the spotlight should now be on the US to contain the seemingly out-of-control epidemic and lift its economy back on track, Chinese analysts said. 

While China has been substantially blamed by US officials for the economic carnage stemming from the pandemic, it is the US that now poses the biggest threat to the recovery of the world economy, said Cao.

"It is impossible for the US economy to return to growth anytime soon," he said, noting that the US is facing multiple crises, including an "out-of-control" epidemic, "chaotic" governance and social unrest over the death of an African American man in police custody.

In the first quarter, the US economy recorded an annualized 5 percent decline. But many expect the serious trouble would start in the second quarter, in line with the pace of the spread of the virus in the country. 

US GDP growth could contract by 30 percent at an annualized rate in the second quarter and 5 percent in 2020, according to US financial institution Pacific Investment Management Co on April 8. The US is scheduled to release GDP data for the second quarter on July 30.

Tian Yun, vice director of the Beijing Economic Operation Association, said that China's swift economic rebound in the second quarter also shows the way for the rest of the world, including the US and India, where the coronavirus resurgence is wiping out progress. "The lesson is to pay a certain price to control the virus, then shore up the economy with stimulus measures," Tian told the Global Times on Thursday.

But the US is on a "completely wrong" path for economic recovery, as officials are calling for work resumption prematurely and even launching attacks on science, Guan said, noting that Europe and other major economies will have a better recovery than the US.

Newspaper headline: China leads economic recovery from virus

Posted in: ECONOMY

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