With Covid-19 under control, the Chinese economy is progressing

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BEIJING – While most countries around the world are still grappling with the coronavirus pandemic, China is once again showing that a rapid economic rebound is possible when the virus is firmly under control.

China’s economy jumped 4.9% in the July-September quarter compared to the same months last year, the country’s National Bureau of Statistics said on Monday. The strong performance brings China back to almost the roughly 6% growth rate it was reporting before the pandemic.

Many of the world’s major economies quickly emerged from the depths of a contraction last spring, when shutdowns caused production to drop sharply. But China is the first to report growth that far exceeds what it was at this time last year. The United States and other countries are also expected to report a surge in the third quarter, but they are still late or just catching up to pre-pandemic levels.

China’s lead could widen further in the coming months. There is hardly any local transmission of the virus now, as the United States and Europe face a new wave of cases that accelerates.

The vigorous expansion of China’s economy means that it is poised to dominate global growth – accounting for at least 30% of global economic growth this year and in the years to come, Justin Lin Yifu, cabinet adviser and honorary dean of the National Development School of Peking University, said at a recent government press conference in Beijing.

Chinese companies account for a larger share of global exports, making consumer electronics, personal protective equipment and other goods in high demand during the pandemic. At the same time, China now buys more iron ore from Brazil, more corn and pork from the United States, and more palm oil from Malaysia. This partly reversed the drop in commodity prices last spring and lessened the impact of the pandemic on some industries.

Yet China’s recovery has helped the rest of the world less than in the past because its imports have not grown as much as its exports. This pattern created jobs in China but held back growth elsewhere.

China’s economic recovery has also depended for months on huge investments in highways, high-speed rail lines and other infrastructure. And in recent weeks, the country has seen the start of a recovery in domestic consumption.

The rich and those living in the export-oriented coastal provinces were the first to start spending money again. But activity is now resuming even in places like Wuhan, the central city in China where the new coronavirus first appeared.

“You had to queue to enter many restaurants in Wuhan, and for Wuhan restaurants that are popular on the internet, the wait is two or three hours,” said Lei Yanqiu, a Wuhan resident at the start. in his thirties.

George Zhong, a resident of Chengdu, the capital of western China’s Sichuan Province, said he had made trips to three provinces in the past two months and was actively shopping when he was at home. “I don’t spend less than in previous years,” Zhong said.

China’s economic growth over the past three months has been slightly lower than economists’ forecast of 5.2% to 5.5%. But the performance was still strong enough that the Shanghai, Shenzhen and Hong Kong stock markets rallied early in Monday.

The widening of the country’s recovery could also be seen in September’s economic statistics, which were also released on Monday. Retail sales rose 3.3% last month from a year ago, while industrial production rose 6.9%.

China’s model of restoring growth may be effective, but may not be attractive to other countries.

Determined to keep local transmission of the virus at or near zero, China has resorted to comprehensive cell phone tracking of its population, multi-week closures in neighborhoods and cities, and expensive mass testing in response to smaller outbreaks.

China’s rebound is also accompanied by some weaknesses, in particular an increase in overall debt this year by an amount equal to 15-25% of the economy’s overall output. Much of the additional debt comes either from borrowing by local governments and public enterprises to pay for new infrastructure, or from borrowing by households and businesses to pay for apartments and new buildings.

The government is aware of the risk of allowing debt to pile up quickly. But curbing new credit would hurt real estate activity, a sector that represents up to a quarter of the economy.

Another risk to China’s recovery is its heavy dependence on exports. Soaring exports over the past three months, along with falling prices for commodity imports, accounted for a large part of the economic growth, one of the largest shares of any quarter in a decade. Exports still represent more than 17% of the Chinese economy, more than double the proportion they represent in the US economy.

Chinese leaders recognize that the country’s exports are increasingly vulnerable to geopolitical tensions, including the Trump administration’s moves to unwind US-China trade ties. Shifts in global demand could also threaten exports, as the pandemic hits economies overseas.

Xi Jinping, China’s biggest leader, has increasingly focused on self-reliance, a strategy that calls for the expansion of service industries and innovation in the manufacturing sector, while enabling residents to spend more.

“We need to make consumers the mainstay,” Qiu Baoxing, a cabinet adviser who is a former deputy housing minister, said at the press conference in Beijing. “By focusing on inner circulation, we actually improve our own resilience.”

But empowering consumers has long been a challenge in China. Under ordinary circumstances, most Chinese are forced to save for education, health care and retirement due to a weak social safety net. The economic downturn and the pandemic have resulted in the loss of jobs, exacerbating the problem, especially for low-paid and rural residents.

Beijing’s approach to helping ordinary Chinese during the downturn has been to give businesses tax cuts and large loans from state-owned banks, so businesses don’t need to lay off workers. But some economists argue that Beijing should instead hand out coupons or checks to help the country’s poorest citizens more directly.

Millions of Chinese migrant workers endured at least a month or two of unemployment in the spring, as factories were slow to reopen after the outbreak. Young Chinese found themselves using their savings to eat or taking a second job to offset falling wages.

But Chinese government economists are reluctant to provide direct payments to consumers. They say the government’s priorities are investment-driven growth and measures to improve productivity and quality of life, such as digging new sewage systems or adding elevators to three million towers. older apartments that lack it.

“We have seen a lot of suggestions to increase consumption, but the crux is to make people richer first,” said Yao Jingyuan, former chief economist of the National Statistics Bureau who is now a policy researcher for the cabinet.

Western governments have tried to provide extra-large unemployment checks, one-off payments, and even subsidized meals in restaurants. These payments were aimed at helping families maintain a minimum standard of living during the pandemic – which in turn fueled demand for imports from China.

Michael Pettis, a finance professor at Peking University, said that as people in other countries backed by government grants continue to look to China for commodities during the pandemic, “we are going to see a resurgence of the trade conflict, and not just in the United States. China, but global. “

Liu Yi and Amber Wang contributed to the research.

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