Growth momentum of the Chinese economy consolidates
By Li Xiaoyang  ·  2021-07-26  ·   Source: NO.30 JULY 29, 2021
An assembly line at FAW Jiefang, a truck subsidiary of Chinese automaker FAW Group, in Changchun, Jilin Province, on July 7 (XINHUA)

With major economic indicators further improving from the low base caused by COVID-19 last year, China's GDP expanded 12.7 percent year on year in the first half (H1) of this year to over 53 trillion yuan ($8.18 trillion). The economy continued to approach the pre-pandemic level and saw high-quality growth, according to the National Bureau of Statistics (NBS).

According to Liu Aihua, a spokesperson for the NBS, the economy saw steady recovery and restructuring in H1 as the government continued introducing supporting policies for small and micro enterprises. These policies lay a solid foundation for sound performance in the second half of the year (H2). While the recovery of some sectors still lags behind, improved market expectations, expanding domestic consumption and resuming external demand boosted by global economic recovery are expected to add to the growth momentum.

"In the January-March period of this year, China's economic growth rose from a low base in Q1 last year and maintained a steady uptrend in Q2. The performance of investment, consumption and foreign trade all showed sound recovery," Xu Hongcai, Deputy Director of the Economic Policy Commission under the China Association of Policy Science, told Beijing Review. "With economic activities back on track, the economic growth in H2 may slow down. The key is to ensure high-quality development through boosting domestic demand and exploring foreign markets."

The Airbus A350 project inauguration and first aircraft delivery ceremony takes place at the Airbus Tianjin Wide-Body Completion and Delivery Center in Tianjin on July 21 (XINHUA)

Overall recovery

Major economic indicators saw further improvement in H1. The summer grain output reached a record high of 145.8 million tons, an increase of 2.97 million tons over last year. The industrial output rose 15.9 percent year on year, with the manufacturing industry registering notable growth. According to Liu, the gross value added (GVA) of the manufacturing industry accounted for 27.9 percent of GDP, up 1.3 percentage points compared with the corresponding period last year. The GVA of the service industry contributed 53 percent to GDP, edging up 2.1 percentage points from Q1.

The performance of market players continued to turn for the better in H1. State-owned and private enterprises both registered over 10-percent GVA growth. As an increasing number of enterprises were established, new industries and new business models continued to boom. The hi-tech manufacturing GVA surged 22.6 percent year on year, bringing the two-year average growth to over 13 percent. In June, the purchasing managers' index of the manufacturing and non-manufacturing industries both stood at above 50, which indicates expansion and market confidence, Liu said.

Domestic demand, including consumption and investment, contributed 80.9 percent to the economic growth in H1, up 4.9 percentage points from the level recorded in Q1, according to Liu.

Data from the NBS showed that consumption accounted for 61.7 percent of the half-year growth. Total retail sales increased 23 percent year on year to over 21 trillion yuan ($3.2 trillion). Online retail volume of physical goods grew 16.5 percent on average over the past two years, accounting for 23.7 percent of the total retail sales of consumer goods. The growth rates of the sales of entertainment, telecommunication and cosmetic products saw further increase.

Although the growth of auto output and sales dropped in June, the GVA of the industry improved 21.8 percent year on year in the first six months, with an average growth rate of 8.6 percent from 2019 and 2020. "The global chip shortage and reduced government subsidies for new-energy vehicles have led cycles of production to extend and caused rising costs. Once the global production resumes, China's auto industry will continue to grow as its car ownership per 1,000 people is still far lower than that in more developed countries," Liu said.

Investment also played a key role in H1 growth. In the January-June period, fixed assets investment went up 4.4 percent on two-year average, up 1.5 percentage points compared with that of Q1. Investment in the manufacturing industry saw around 19 percent of year-on-year growth. "The improvement of investment in manufacturing can be attributed to rising external demand, which has boosted exports, as well as supportive government policies," Wen Bin, chief analyst at China Minsheng Bank, told Beijing Review.

According to Liu, China's investment structure improved as input in hi-tech and service industries, as well as public sectors such as healthcare, grew remarkably. On a two-year average basis, private investment grew 3.8 percent with an increase of 2.1 percentage points from Q1.

"Investment will continue to improve in H2 as market vitality and the confidence of enterprises enhance. The uptrend will also receive a boost from policies for improving urban infrastructure, speeding up rural vitalization, stabilizing industrial supply chains and upgrading traditional industries," she said.

Trade growth

China's foreign trade rose 27.1 percent year on year to 18.07 trillion yuan ($2.79 trillion) in H1. The growth marked an increase of 22.8 percent from the level in 2019. While exports expanded 28.1 percent from a year earlier, imports climbed 25.9 percent in yuan terms, the General Administration of Customs of China (GACC) announced on July 13.

Cross-border e-commerce saw steady expansion in the six months, with the total trade value growing 28.6 percent year on year to 886.7 billion yuan ($136.6 billion).

The growth rates of China's trade value with its top three trading partners—the Association of Southeast Asian Nations, the EU, and the United States—reached 27.8 percent, 26.7 percent and 34.6 percent, respectively.

The World Trade Organization projected that the global trade in goods would expand 8 percent this year. According to GACC spokesperson Li Kuiwen, China's foreign trade growth may slow down in H2 due to a high base last year, while the import and export volume for the whole year is still expected to maintain sound momentum.

Tourists visit a scenic area in Fuzhou, Fujian Province, on July 15 (XINHUA)

Better life

The NBS data showed 6.98 million new urban jobs, or 63.5 percent of the annual target, were created in H1. The surveyed urban unemployment rate of the country stood at 5 percent in June, 0.7 percentage point lower than the corresponding period last year. In the first six months of the year, the national per-capita disposable income was 17,642 yuan ($2,727), up 12.6 percent year on year in nominal terms.

According to Xu, the growth of consumption, investment and foreign trade helped boost employment in H1, however, the momentum may not continue in H2 as their expansion has become more moderate. To address the challenge, the pro-employment policy needs to be more proactive and the authorities should encourage more employment in hi-tech manufacturing and service sectors, he suggested.

Since grain and pork supplies have become stable, the consumer price index (CPI), a main gauge of inflation, expanded only 0.5 percent year on year in H1. The growth was 3.3 percentage points down from the level in the same period of 2020. In the meantime, food prices dropped 0.2 percent, down from the 16.2-percent increase in the corresponding period last year. The decline of CPI can be mainly attributed to dropping food prices, the NBS said.

The service price rose 0.3 percent year on year in H1. With effective pandemic control, the catering, hotel and tourism industries will further recover in H2, while the increase of service prices will be mild as containment measures will still be in place.

The producer price index (PPI), which measures costs for goods at the factory gate, expanded 5.1 percent in January-June, up 3 percentage points from Q1. China's complete industrial system and strong production capacity will ensure that the price of industrial goods will not continue to rise significantly despite the improving prices of commodities on the international market, Liu said.

As both the prices of services and the PPI are expected to remain stable, they will not put severe upward pressure on the CPI, according to the spokesperson.

Future outlook

China plans to achieve an annual economic growth of over 6 percent in 2021. H2 growth will continue to be challenged by unbalanced recovery and the global spread of the pandemic, Liu said.

The rebound in consumption is still weak and, to address this, efforts are needed to boost employment and expand the middle-income group. Since domestic economic restructuring has led to a decline in the demand for some jobs, the government needs to enhance support for small and micro enterprises as well as the self-employed.

"Enterprises, especially small and micro downstream enterprises, still face pressure from the rising commodity prices. Besides providing support, the government needs to fend off financial risks emerging from preferential policies introduced earlier for the enterprises and speed up the disposal of non-performing loans," Xu said.

While external demand is resuming, he cautioned that commodity prices may continue to grow due to inflation caused by massive stimulus policies of countries such as the U.S. "That can lead to rising costs of China's industrial production and fluctuations in the exchange rate of the yuan," he said. 

(Print Edition Title: On an Upward and Upbeat Course)

Copyedited by G.P. Wilson

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