By Jeph Ajobaju, Chief Copy Editor
China is in a race with the United States on all fronts and the world’s second largest economy was ecstatic in the first quarter of 2021 (Q1 2021) when it had a record 18.3 per cent growth compared to Q1 2020.
It was the biggest jump in Gross Domestic Product (GDP) since China started keeping quarterly records in 1992, according to the BBC, even though it was below expectations, with a Reuters poll of economists predicting 19 per cent growth.
The sharp rebound from coronavirus has now slowed, with official figures showing that GDP rose 7.9 per cent in Q2 2021 compared to Q2 2020.
That was less than half the rate seen in the previous quarter and missed economists’ forecasts of 8.1 per cent growth.
GDP is one of the most important ways of showing how well, or badly, an economy is doing.
It’s a measure – or an attempt to measure – all the activity of companies, governments and individuals in an economy.
Official figures quoted by the BBC for June also showed better-than-expected growth for retail sales and industrial production.
“China’s economy sustained a steady recovery with the production and demand picking up,” the NBS said in a statement.
However, the release went on to caution: “The epidemic continues to mutate globally and external instabilities and uncertainties abound.”
Economists have raised concerns about the recovery of the world’s second largest economy in recent months.
Record high prices for commodities, like iron ore and copper, helped to push its factory inflation to the highest level in more than a decade.
The country has also seen supply chain disruptions as shipping firms have been hit with backlogs, while shortages of energy also hampered factory output.
The 18.3 per cent growth metrics in Q1 2021 were heavily skewed, and less indicative of strong growth, as they are compared to last year’s huge economic contraction – China’s economy shrank 6.8p er cent in Q1 2020 due to nationwide lockdowns at the peak of its Covid-19 outbreak.
Recent warning signs
Because China’s initial recovery last year was so rapid, the country has “basically fully recovered,” said Julian Evans-Pritchard, senior China economist for Capital Economics.
“In fact, it’s above its pre-virus trend,” he told CNN Business.
“There’s just a lot less room for it to continue to grow rapidly, so it’s hitting against those constraints, and that’s why we’re starting to see those growth rates weakened quite considerably.”
CNN adds that the Chinese economy has been flashing some troubling signs in recent months.
Record commodity prices drove factory inflation to the highest levels in more than a decade, while supply chain disruptions caused by shipping backlogs and an energy shortage held back factory production.
Growth in the services sector has also slowed recently, as a Covid-19 outbreak in southern China and subsequent containment measures curbed consumer and business activity.
“We are facing a complicated domestic and international environment, especially a rise in commodity prices, which has put significant cost pressure on business,” said Liu Aihua, an NBS spokeswoman, at a press conference in Beijing.
She cited a need to “properly handle” risks and help small and medium-sized businesses grow.
The government also released data showing that some production has slowed in recent months. Industrial output increased 8.3 per cent in June from a year prior, slightly easing from May’s 8.8 per cent growth.
Output in auto manufacturing dropped more than 4 per cent last month, compared to a year earlier, which Liu attributed mainly to the ongoing chip shortage.
Uneven recovery
Domestic demand, though, remains the weak link, according to Yue Su, principal economist for The Economist Intelligence Unit.
Retail sales growth slowed to 12.1 per cent in June, down from 12.4 per cent in May, according to the data. That’s the slowest rate of growth this year.
“China’s Q2 GDP data continues to indicate uneven recovery,” Yue said, adding that retail sales haven’t yet recovered to trends seen before the pandemic.
She said reviving domestic demand is going to be “challenging,” as households are still stuck with budgeting their limited time and money.
Unemployment is also cause for concern.
The urban unemployment rate held steady at 5 per cent in June, unchanged from May. But the jobless rate among young people increased, jumping to 15.4 per cent for those between the ages of 16 and 24 by the end of June, compared with 13.6 per cent three months earlier.
“We are indeed facing big employment pressure,” said Liu from NBS, noting that the number of university graduates hit a new record of nearly 9.1 million people this year.
“We must continue to give priority to stabilizing employment and create more jobs.”
Growth forecast still on target
According to CNN, even though the recovery of the world’s second largest economy is pulling back, China is still on track to exceed its annual growth target this year.
“Overall, China’s economy looks to be on track for recovery, with the 6 per cent annual growth goal in reach,” Chaoping Zhu, global market strategist for JP Morgan Asset Management, wrote in a research note.
Beijing set that growth target in early March as it signaled a need to get back on track with President Xi Jinping’s longterm goals for the economy.
China has also enjoyed some other good news recently.
On July 14, the National Health Commission said the country has administered more than 1.4 billion doses of Covid-19 vaccines, meaning it has vaccinated half of its population with at least one dose.
And earlier last week, Beijing said exports surged more than 30 per cent in June compared with the same period in 2019, a sign that global demand for Chinese-made goods is strong.
“Resilient external demand could help offset some domestic pressure and support aggregate growth, even if strong export growth looks unsustainable,” Zhu said.
