Pressure and perseverance: the Chinese economy maintains its resilience
The Chinese economy faces multiple challenges, including high commodity prices and sporadic cases of COVID-19, with the latest data pointing to slowing consumption growth and a contraction in factory activity.
A closer look at the economic landscape, however, shows that the resilience and vitality of the world’s second-largest economy persist despite headwinds.
The purchasing managers index (PMI) for China’s manufacturing sector stood at 49.6 in September, down from 50.1 in August, data from the National Bureau of Statistics (NBS) revealed on Thursday. A reading above 50 indicates expansion, while a reading below 50 reflects contraction.
Consumption growth, a key pillar of China’s economy, slowed in August amid new cases of COVID-19 and restriction measures, according to earlier official data. Retail sales of consumer goods rose 2.5% year-on-year in August, down 6 percentage points from the previous month.
Flooding and sporadic outbreaks of COVID-19 cases have slowed the growth of consumption and the service industry, and affected the progress of investment projects in parts of the country, but the Chinese economy will maintain its momentum for recovery, said Li Hui, an official with the National Development and Reform Commission (NDRC).
Citing improvements in areas affected by floods and epidemics, Li said she was confident the country had the capacity and conditions to meet all economic and social development goals in 2021 despite possible fluctuations in some indicators. monthly in the future due to base effects.
Wang Bin, an official with the Ministry of Commerce, noted that the overall dynamics of the rebound in consumption remain unchanged.
Retail sales of consumer goods in China are expected to reach 44 trillion yuan (about $ 6.8 trillion) in 2021, up 12.5% from last year and 8% from 2019 Wang said.
There are a lot of bright spots in the economy. While manufacturing activity contracted in September, the high-tech manufacturing sector maintained steady development, with a PMI reaching 54, the SNB said.
The service sector also rebounded. China’s non-manufacturing sector PMI stood at 53.2 in September, returning to the expansion zone after plunging to 47.5 in August.
Foreign trade is considered one of the main drivers of China’s economic resilience. Although the pandemic continued to disrupt international trade in August and shipping costs rose, China’s imports and exports managed to maintain positive growth for a 15th consecutive month, according to customs data.
Exceeding expectations, Chinese export growth in August jumped to 15.7% year-on-year, nearly double the 8.1% expansion seen in July, supported by robust global demand.
Foreign trade is expected to continue to do well in the second half of 2021, although the rate of export growth may slow due to base effects, according to the Asian Development Bank’s 2021 Asian Development Outlook update ( ADB).
Foreign direct investment in mainland China, in actual use, rose 22.3% year-on-year in the first eight months of the year as foreign investors remain optimistic about the economic outlook.
The labor market remained stable, with the registered urban unemployment rate rising to 5.1% in August, unchanged from July.
Profits of major Chinese industrial companies have been growing steadily, increasing 49.5% year-on-year between January and August, according to official data.
International organizations recently raised or maintained their growth forecasts for China. The World Bank has predicted that China’s economy will grow 8.5 percent in 2021, up 0.4 percentage points from its April projection, according to its new East Asia economic update and Pacific fall 2021.
The Organization for Economic Cooperation and Development, in its latest Interim Economic Outlook, said China’s economy is expected to grow 8.5 percent in 2021, unchanged from its May forecast.
The AfDB has also maintained its projections for China’s economic growth, again estimating growth of 8.1 percent in its update to Asia’s 2021 development outlook.
“Growth in China will remain strong,” the ADB report said, noting that the gradual recovery in consumption is expected to continue, bolstered by improving labor market and consumer confidence.
Aaditya Mattoo, World Bank chief economist for the East Asia and Pacific region, attributed China’s strong recovery to its effectiveness in containing the disease, robust exports supported by a sustained recovery abroad and the government’s ability to provide support.
Since the initial COVID-19 outbreak, China has refrained from taking sweeping stimulus measures. Instead, the country has sought to maintain the continuity and stability of its macroeconomic policies, and to make them more focused and forward-looking.
The country has strengthened monetary and fiscal support to its weak links, such as the rural sector and small businesses, and improved the business environment for all types of businesses to unleash market strength.
“China’s potential economic growth rate is expected to remain within the 5% to 6% range, and the country has the conditions to implement normal monetary policies,” said Yi Gang, Governor of the People’s Bank of China. , in a recently published article. in the Journal of Financial Research.