Not all of China recovering from coronavirus at same rate, investigation finds

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In this photo taken on September 22, 2020, people commute on shared bikes along a street during the evening rush hour in Beijing.Nicolas Asfouri | AFP | Getty Images

BEIJING – China’s economic recovery from the coronavirus shock is only happening in part of the country, according to an independent China Beige Book investigation released on Thursday.The world’s second-largest economy was the first country to be affected by the coronavirus pandemic. More than half of the country closed in early February in an effort to limit the spread of the virus, contributing to a 6.8% contraction in growth in the first quarter. As the disease outbreak stalled in March, businesses began to reopen and official gross domestic product rose 3.2% in the second quarter.

Data released by the government in the months that followed indicate a continuation of the overall recovery. Chinese economists at Nomura are forecasting third-quarter GDP growth of 5.2% from a year ago.

An independent survey of more than 3,300 companies nationwide between August 13 and September 12 shows that growth is intact – in the wealthiest coastal regions, according to the China Beige Book’s first look. The company conducts the survey quarterly.

“For large companies and those based in the 3 major coastal regions surrounding Shanghai and Beijing, as well as Guangdong – the corporate elite – the economy is accelerating. It is the public face of the Beijing recovery story, ”the report said. “But the rest of China – plus companies in plus regions – are experiencing a much more moderate recovery. (Small and medium enterprises) and non-core businesses earn, sell, invest and borrow much less than their counterparts. ”

The analysis found that third-quarter revenues and profits in each region fell double-digit from last year, while most provinces in landlocked regions of the country saw production and domestic orders decline. compared to the previous quarter.

The employment situation is stabilizing

Employment, which is a priority for the Chinese central government, saw a marked improvement in the third quarter, according to the survey. The manufacturing sector recorded the fastest gains in hiring, while the retail sector posted the biggest improvement in sales volume and prices, the China Beige Book said.

“Geographically, labor market conditions were better than in the second quarter in all regions,” Shehzad Qazi, managing director of China Beige Book, said in an email. “That said, hiring was strongest on the coast, with places like Shanghai recording nearly twice the job growth of many inland provinces. ”

The official, but highly questionable, unemployment rate measured by the official cities survey was 5.6% in August, 0.1 percentage point lower than in July, the National Bureau of Labor said last week. statistics.

Other underlying concerns

However, once again, the general recovery masks remaining challenges in sectors such as services, which have employed a growing share of Chinese in recent years as the government attempts to strengthen the economy’s dependence on consumption. for growth.

Borrowing actually declined among service firms, which were twice as likely to be turned down for loans as real estate firms, Qazi said.

“The main impact of Covid now appears to be on services, which have seen only a marginal improvement compared to the second quarter in terms of revenue, profits and selling prices, with no increase in hiring,” said the third quarter press release. “Consumers are not convinced that Covid is under control or the long-awaited rise of services is more threatened. ”

Looking at the long-term growth prospects for the Chinese economy, other analysts point to other issues that remain unresolved.

“China faces more risks on its current trajectory than is generally believed and the country has encountered stressful incidents within its financial system that could have spilled over into larger crises,” Logan Wright , Lauren Gloudeman and Daniel H. Rosen, of the consulting and research firm Rhodium Group said in a report titled “The Matrix of Economic Risks in China” released Wednesday.

“Cycles in the real estate industry strain at the heart of some of Beijing’s vulnerabilities in containing financial stress. There is no solid record of policymakers in any country capable of deflating a large real estate bubble without negative consequences, ”the authors wrote.

They pointed out that most analysts, under the assumption that the Chinese government has the will and the capacity to intervene, generally describe the authorities’ handling of economic problems as follows: “When? they want to do something, they usually can do it. ”

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