Analysis by Xinhua writers Zhang Yiyi, Ding Yinghua, Hu Wenjia & Xu Xiaoqing
– Mainland China’s economy is on track to a V-shaped recovery by returning to the pre-outbreak level, economists say, citing burgeoning signs in industrial chains and the services sector, as well as work resumption.
– The recovery of the world’s second-largest economy is expected to boost the pace of other economies’ restoration, as China has proposed a new development pattern of dual circulation, which underscores the domestic market as the mainstay while domestic and foreign markets can boost each other.
– The mainland’s economic rebound is expected to further consolidate in the third and fourth quarters with a 2.5-percent to 3-percent year-end growth and more stabilizing measures and policy incentives.
BEIJING – Mainland China’s economy, as shown by multiple mid-year indicators, has ridden out its downturn due to COVID-19 strains and bounced back to growth in the second quarter. Economists believe that the country’s V-shaped recovery is only getting started.
In the second quarter, gross domestic product (GDP) expanded by 3.2 percent year-on-year, reversing a 6.8-percent contraction in the previous quarter. Fiscal revenue marked the first expansion this year by gaining 3.2 percent year-on-year in June, while the contraction of the retail sector declined markedly.
BACK IN THE GAME
“China’s economy has gradually emerged from the slump and returned to the level it was roughly at prior to the [novel coronavirus] outbreak, backed by the stimulation that has delivered burgeoning signs of work resumption, industrial chains and the services sector,” said Shao Yu, chief economist at Orient Securities.
Latest data showed that the purchasing managers’ index (PMI) for the mainland’s manufacturing sector rose to 51.1 in July from 50.9 in June, remaining in expansion territory for the fifth month in a row, indicating stronger confidence of market entities.
“The steadily firming recovery points to the effectiveness of China’s epidemic prevention and pro-growth policies to boost production and domestic consumption,” said Sheng Hai, a macro analyst with China Industrial Securities.
His point was echoed by Steven Zhang, chief economist at Morgan Stanley Huaxin Securities. “China has its institutional advantages that enable a more agile and rapid response to public safety emergencies like COVID-19.”
The prompt introduction and implementation of an array of measures, including higher fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements to revive the economy and support employment, according to Zhang, is one of the major reasons behind the second-quarter positive growth.
SHARED OPPORTUNITIES
As recent data showed that the mainland’s imports from emerging countries increased significantly, the recovery of the world’s second-largest economy is expected to boost the pace of other economies’ restoration, according to Zhang.
In the first half, the mainland’s trade with ASEAN went up 5.6 percent year-on-year to 2.09 trillion yuan, while that with countries along the Belt and Road (B&R) accounted for 29.5 percent of the total trade, up 0.7 percentage points year-on-year.
Zhang said that trade between China and other parts of Asia, B&R countries and ASEAN was expected to further expand as the spillover effects will be more notable due to shorter distance and lower logistics costs.
To mitigate the impact of the COVID-19 outbreak, the country has been investing heavily in infrastructure projects through local government bond issuance, which is expected to buoy demand for bulk commodities in the global market, thereby benefiting B&R countries, as major bulk commodity exporters, Zhang noted.
“Such effects came in as a demonstration of the new development pattern, or ‘dual circulation’, proposed in [the recent] meeting of the Political Bureau of the Communist Party of China Central Committee, which underscores the domestic market as the mainstay while domestic and foreign markets can boost each other,” said Zhang.
SOLID FOOTING
“China’s economy has mostly ridden out the COVID-19 blow and is entering a V-shaped rebound trajectory,” said Zhang, forecasting the recovery to further consolidate in the third and fourth quarters with a 2.5-percent to 3-percent year-end growth.
In the backdrop of the economic rebound, the recent Political Bureau meeting stressed ramping up nationwide efforts to foster new opportunities amid challenges and make new advances amid changes.
As one of the key forces driving economic growth, consumption will catch up with the momentum in overall recovery and see some pent-up demand unleashed during the second half of the year as the service sector picks up pace amid further containment of COVID-19, Zhang said.
Thanks to policies aiming to ensure stability in employment, consumer spending will be further propelled as the two factors underpinning the consumption revival, namely the urban unemployment rate and resident income, are stabilizing.
Official data showed that the mainland’s surveyed unemployment rate in urban areas stood at 5.7 percent in June, down 0.2 percentage points from May.
Resident income is also expected to hold steady on the back of firming economic data. In the first six months of the year, the urban per capita disposable income came in at 21,655 yuan, up 1.5 percent in nominal terms and down 2 percent in real terms.
While economic fundamentals are solidifying, new growth drivers, such as new infrastructure like 5G, artificial intelligence (AI) and cloud computing that have attracted big sums from investors, will also become a bright spot fueling economic growth, Shao noted.
In the second half of the year, China, on top of stabilizing measures, will invest more in domestic demand, new infrastructure, online industries and independent innovation for a stronger recovery despite global uncertainties, Shao added. – Xinhua
* According to Investopedia, a V-shaped recovery is a type of economic recession and recovery that resembles a “V” shape in charting. Specifically, a V-shaped recovery represents the shape of a chart of economic measures economists create when examining recessions and recoveries. A V-shaped recovery involves a sharp rise back to a previous peak after a sharp decline in these metrics. It is characterised by a quick and sustained recovery in measures of economic performance after a sharp economic decline. Investopedia points out that because of the speed of economic adjustment and recovery in macroeconomic performance, a V-shaped recovery is a best case scenario given the recession. – MPD
