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CHINA’s economic recovery from the sunken depths during the Covid-19 pandemic is providing support to a global economy suffering its deepest recession since the Great Depression.
Third-quarter data to be released at 10 a.m. in Beijing on Monday is expected to show gross domestic product rose 5.5% from the same period a year earlier, according to the median of economists surveyed by Bloomberg News. Retail sales, investment and industrial production are expected to recover in September, suggesting that the recovery is widening.
If the numbers live up to expectations, that will mean that the world’s second-largest economy, and the first to be hit by the virus, will have regained all the ground it lost in the first half.
Underpinning the recovery has been aggressive containment of the deadly coronavirus that has allowed factories to quickly reopen and capitalize on the global flood of medical equipment and work-from-home technology, a dynamic that helped exporters gain record market share. in the seven months. to July.
Shoppers have been more cautious, but robust spending during the recent Golden Week holiday suggests they are starting to reopen their wallets again.
The recovery has come with relatively tight government borrowing and a loosening of the central bank compared to its peers in China. Instead, the government has focused on specific support for businesses, in contrast to the way it responded to the global financial crisis.
Policy support
“China is supporting the world in a different way than it did after 2008,” said Shen Jianguang, chief economist at e-commerce giant JD.com. “A slowing economy means it couldn’t afford another stimulus in 2020. Instead, it did its job serving as a ‘provider of last resort.’
Central bank governor Yi Gang said on Sunday that China has a “proactive fiscal policy” and “a accommodating monetary policy to support the economy.”
“Right now, China has basically brought Covid-19 under control,” Yi told a webinar organized by the Group of 30. “Overall, the Chinese economy remains resilient with great potential. A recovery is anticipated. continues to benefit the world economy. “
What the Bloomberg economists say …
“The trajectory of industrial production is the most relevant for China’s production-based GDP growth data. Based on production growth in July and August and our projection for September, we estimate GDP growth of 5 , 3% YoY for 3Q, although recent signs point to something positive in the projection.
– Chang Shu, Asia Chief Economist. Bloomberg Terminal customers can read its full preview by clicking HERE
Analysis of International Monetary Fund data shows that the share of global growth coming from China is expected to rise from 26.8% in 2021 to 27.7% in 2025, according to Bloomberg calculations.
The IMF says Chinese growth is pretty much the only reason it expects global production to be 0.6% higher by the end of 2021 compared to the end of 2019.
But the recovery is not without its holes. The economy is still forecast to be just 0.7% larger in the nine months to September than in the same period in 2019. At the beginning of the year, the government expected annual growth of around 6%.
And consumers have been slow to spend as before. Even with the virus under control, shoppers have spent about 9% less in the first eight months of the year compared to the same period last year.
It is also unclear how long the recovery will last given the domestic pressures of unemployment and rising corporate and household debt. China Evergrande Group, the world’s most indebted developer, has troubled investors amid fears over its financial health.
Much will also depend on how relations with the United States evolve after the November presidential elections. Any worsening of trade frictions could be an obstacle to the reactivation of exports. At the same time, the resurgence of the virus in Europe and the United States will complicate the global rebound and could hurt China’s own recovery.
Getting the economy to recover quickly is crucial to China’s global ambitions. President Xi Jinping criticized them last week during a tour of the Shenzhen technology hub, where he redoubled calls to take global leadership in technology and other strategic industries.
By urging an “unwavering” commitment to technological innovation in a period of “change never seen in a century,” Xi again promoted the need to become more self-reliant, a policy that is expected to be a central part of a new economic plan. quinquennial. which will be discussed at a Communist Party meeting expected later this month.
Read more: Bloomberg Trade Tracker is back to normal
That focus on driving growth in new economy sectors such as consumer, technology, and services means that investment outpaces that in old sectors, making this cycle different from the post-construction credit and construction boom. 2008, said Cui Li, head of macro research at CCB International Holdings. Ltd. in Hong Kong.
“An industrial cycle led by economic improvement and the absence of a large credit expansion will make this recovery in growth more sustainable,” he said. “The Chinese recovery will continue.” – Bloomberg
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