China’s gross domestic product (GDP) rose 18.3% year-on-year in the first quarter of 2021, compared with its worst economic performance in 44 years over the same period a year ago. However, “the recovery remains uneven, with household consumption lagging,” particularly due to unemployment, HSBC Bank analyst Qu Hongbin wrote in a recent note.
China is causing a stir. With gross domestic product (GDP) jumping 18.3% year-over-year in the first quarter, the Middle Kingdom is posting record growth! But this spectacular performance needs to be put into perspective, as China’s GDP had slumped 6.8% in the first quarter of 2020 (the worst economic performance in 44 years). Gradual improvement in health conditions then enabled China to return to pre-pandemic levels late last year. And the country was one of the few in the world to post positive growth (+2.3%) in 2020.
“Overall, the recovery has continued in the first quarter” of 2021 and this is “a good start,” National Bureau of Statistics spokeswoman Liu Aihua told reporters. The China signs record growth since the start of quarterly GDP releases in 1992. This sharp acceleration in China’s GDP in the first quarter had been widely expected: A group of analysts surveyed by AFP had also expected an even larger increase (18.7%). “The foundations of the recovery need to be consolidated,” Ms. Liu warned, however, referring in particular to the “uncertainties” that persist in the world at epidemic levels.
The good result was mainly related to the low comparison base at the beginning of 2020, when the Chinese economy was paralyzed by the virus, Ms. Liu acknowledged. As a result, the growth figure “gives little information about the current dynamics of the economy,” warns Capital Economics analyst Julian Evans-Pritchard. Although China’s official GDP figure is questionable, it is still being questioned given the country’s weight in the global economy.
“The main driver of growth in the first quarter was exports,” particularly of electronic products (for telecommuting) and medical equipment to the United States and the European Union, economist Rajiv Biswas of IHS Markit tells AFP. In March, Chinese exports remained robust (+ 30.6% over a year), while much of the world is still affected by the epidemic. However, “the recovery remains uneven, with household consumption lagging,” particularly due to unemployment, HSBC Bank analyst Qu Hongbin noted in a recent note.
Retail sales, the main indicator of consumption, rose 34.2% year-on-year in March, up from 33.8% in January-February combined, the only data available. But some sectors are struggling to regain their pre-pandemic levels, such as air and rail transportation, whose activity levels have peaked at 60%. “A full recovery in household consumption is due to the vaccination campaign and an improvement in the labor market,” said analyst Louis Kuijs of Oxford Economics.
The unemployment rate – calculated for urbanites only – was 5.3% in March, down from an all-time high of 6.2% in February 2020 at the height of the epidemic. However, this criterion paints an incomplete picture of the economic situation: unemployment in China does not take into account the nearly 300 million migrant workers of rural origin who were severely disadvantaged by the epidemic last year.
For its part, Chinese industrial production grew 14.1% in March, down from 35.1% in January-February combined. Year-to-date fixed-asset investment growth stood at 25.6% at the end of March. Now that Beijing has recovered from the epidemic shock, it is aiming for a growth target of at least 6% this year – a figure much more modest than most economists’ forecasts. “Strong exports combined with a solid improvement in domestic consumption” will be the main drivers of Chinese growth in the coming months, Biswas said. For its part, the International Monetary Fund (IMF) expects GDP in the world’s second-largest economy to rise 8.4%.
