Business
China's economy rebounds despite headwinds triggered by COVID-19
By Li Xiaoyang  ·  2021-01-25  ·   Source: NO.4 JANUARY 28, 2021

Shoppers at the Joy City mall in Beijing on January 17 (XINHUA)

Recovering from the contraction caused by the novel coronavirus disease (COVID-19) epidemic, China's economy saw a better-than-expected performance in 2020. The GDP expanded 2.3 percent year on year to 101.59 trillion yuan ($15.6 trillion), exceeding the 100-trillion-yuan ($15.42 trillion) mark for the first time. The per-capita GDP exceeded $10,000 for two consecutive years, narrowing the gap with high-income countries, data from the National Bureau of Statistics (NBS) showed.

Despite the 6.8-percent contraction in the first quarter last year, the GDP resumed positive year-on-year growth in the second quarter to 3.2 percent, finally reaching 6.5 percent in the fourth quarter. Throughout the whole year, notable progress was made in industrial restructuring, the use of clean energy and opening up the market, Ning Jizhe, head of the NBS, told a press conference on January 18.

According to Ning, the resumption of consumption, investment and foreign trade played a significant role in the rebound. The government introduced measures for curbing the epidemic, alleviating poverty, resuming industrial production and boosting trade growth, turning challenges into opportunities with a boom in new business models. However, the economy still faces uncertainties, including a global pandemic. So more efforts are needed to consolidate the recovery.

"Although COVID-19 cases reemerged in some regions in recent months, the impacts on the economy are still controllable. Backed by a complete industrial system, a great market demand, technological progress and a large talent pool, the economy will grow steadily this year," Ning said.

V-shaped recovery

With epidemic containment and supporting policies, the sectors affected have picked up steam amid resumed market expectations. Over the past year, the government introduced measures including improving fiscal spending, tax relief and cuts in lending rates and the reserve requirement ratios of financial institutions to tide enterprises over difficulties. Data from the State Taxation Administration showed that the tax and administrative fee cuts exceeded 2.5 trillion yuan ($386.35 billion) last year.

According to the NBS, the agricultural sector remained stable despite the epidemic and floods, with a 3-percent year-on-year growth of value-added output. Value-added industrial output, a key indicator of economic vitality, climbed 2.8 percent year on year as production and work gradually resumed since March 2020. The value-added output growth of the manufacturing industry reached 3.4 percent. The value-added industrial output of hi-tech manufacturing industries expanded as the demand for high-end products including smart watches and drones for civilian use grew.

The service sector, hit hard by the epidemic in the first months of 2020, saw its value-added output increase 2.1 percent compared with 2019 as people's outdoor activities gradually resumed in the following months. "Domestic epidemic containment also drove the development of online business models including remote work, teleschooling, Internet-based healthcare and live-streaming, injecting impetus into the economy," Ning said.

Consumption remained a major driving force, contributing 54.3 percent to the GDP growth. While retail sales of consumer goods, worth 39.19 trillion yuan ($6.05 trillion), showed 3.9-percent decline year on year, the sector went up 4.6 percent in the fourth quarter of 2020, close to the pre-epidemic level. Auto sales particularly saw notable resumption. Boosted by greater indoor activities during epidemic containment, online retail sales of physical goods expanded 10.9 percent year on year to 11.76 trillion yuan ($1.8 trillion).

Fixed assets investment, another key growth driver, saw a 2.9-percent year-on-year growth, with the investments in the primary, secondary and tertiary industries all registering positive growth. Although investment in the manufacturing industry dropped 2.2 percent year on year, hi-tech industries and social sectors including healthcare and education saw robust year-on-year growth in investment, standing at 10.6 percent and 11.9 percent, respectively. The government will continue to encourage people to make more investments than simply deposit their money in financial institutions, Ning said, as private investment grew only 1 percent year on year.

Foreign trade registered better-than-expected performance. Total imports and exports in goods expanded 1.9 percent year on year to 32.15 trillion yuan ($5 trillion), hitting a record high, according to the General Administration of Customs of China on January 14.

Amid shrinking global trade, China continued to draw investment and the paid-in foreign direct investment expanded 6.2 percent year on year to a record high of more than 999 billion yuan ($144 billion).

The government maintained its efforts to widen the opening up of the domestic market despite the global pandemic situation. According to Ning, the development of the Hainan Free Trade Port in south China, stable economic and trade exchanges with other countries participating in the Belt and Road Initiative, and the signing of the Regional Comprehensive Economic Partnership agreement helped boost the opening up.

"A recovered foreign trade made key contributions to the economic growth as the export of anti-epidemic supplies rose greatly and China's supply chains remained stable amid global uncertainty," Xu Hongcai, Deputy Director of the Economic Policy Commission under the China Association of Policy Science, told Beijing Review. Many global orders flew to China when the epidemic was largely contained domestically.


Passenger trains at the Nanchang Railway Station, Jiangxi Province, east China, on May 5, 2020 (XINHUA)

Ensuring people's wellbeing

Despite the challenges brought by the epidemic, the government completed the goal of eliminating absolute poverty in 2020 and shored up efforts to improve people's life. By the end of last year, 55.75 million rural people shook off poverty over five years and all the 832 impoverished counties nationwide were removed from the official poverty list.

Thanks to steady production resumption, the job market remained stable. The surveyed unemployment rate in urban areas stood at 5.6 percent, below the government's annual target of around 6 percent. Per-capita disposable income of residents rose 2.1 percent year on year to 32,189 yuan ($4,970). In rural areas, it exceeded 17,000 yuan ($2,624) with nearly 4-percent actual year-on-year growth.

E-commerce played a key role in improving the income of rural residents. According to the Ministry of Agriculture and Rural Affairs earlier in January, 98 percent of villages were covered by 4G network. Many farmers turned to live-streaming platforms last year to sell agricultural products, which diversified their income sources.

The consumer price index (CPI), a main gauge of inflation, rose in recent months due to epidemic-induced logistics suspension and reduced supplies. It rose 2.5 percent year on year, lower than the government's annual target of around 3.5 percent.

As the prices of fruits, vegetables and meat climbed last December from a year earlier, food prices returned to positive year-on-year growth of 1.2 percent from the 2-percent decrease in the previous month. According to Ning, pork prices, driven up by supply shortage earlier last year, have fallen as domestic hog production and imports improve.

The producer price index, which measures costs for goods at the factory gate, fell 0.4 percent year on year in December 2020, narrowing from the 1.5-percent decline in November, NBS data showed on January 11.


Long-term goals

On January 8, the International Monetary Fund projected China's economy to expand 7.9 percent in 2021. With accelerated economic resumption and improved market confidence backed by effective epidemic control and the recently started vaccination drive, the economy is expected to rebound further.

However, efforts are needed to make the economic indicators return to pre-epidemic levels. Moreover, China's per-capita GDP is still below the world's average and gaps in incomes among regions remain, Ning said. The aim for this year is to improve the distribution system to enhance people's incomes.

While remaining upbeat about China's economic growth this year, Xu said the government needs to boost investment in key areas and drive high-end manufacturing industries to meet upgraded demands. To drive up domestic demand, the middle-income group should be expanded by boosting the real economy. This can be done by advancing urbanization, modern agriculture and service industries and applying digital technologies more, according to him.

"Since the housing prices in major cities saw mild growth in recent months, the government also needs to rein in the market and support rental for middle- and low-income groups," Xu added. BR

(Print Edition Title: Back to Expansion)

Copyedited by Sudeshna Sarkar

Comments to lixiaoyang@bjreview.com

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