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The Chinese economic recovery

China was the first country to be affected by the Coronavirus, consequently the first to suffer serious economic repercussions. However, its economic recovery appears to be more than satisfactory.
A few days ago the Chinese National Statistics Office published the data of the national economic performance of May 2020. From a general point of view, the main economic indicators of May showed continuous improvement, with the economic trend that continued recovery trend. Faced with internal and external pressures, the Chinese economy has shown great resilience, proving that China has the ability to overcome temporary difficulties and to continue moving forward.

Going into more detail, in May Chinese industrial production recovered steadily and the added value of industrial enterprises above the designated size increased by 4.4% compared to the same period last year. The service sector production index increased by 1.0% compared to the same period last year; market sales have gradually recovered and consumer prices have increased by 2.4% compared to the same period last year; the unemployment rate in urban areas stood at 5.9%, recording a decrease of 0.1 percentage points compared to the previous month.

Even during the epidemic, China continued to comply with the laws of economic development and was able to adapt its development objectives in a timely manner by adapting them to the current situation, stabilizing its economic fundamentals. In this context, China’s economic data for May also present many positive points.

First of all, consumption continues to improve. With effective control of the epidemic situation, sales on the Chinese market have improved for three consecutive months. In May, the volume of retail sales in China was almost at the level of the same month last year and online retail sales accelerated. In addition, the high-tech industry has become a new driving force for China’s economic growth during the epidemic period. A variety of new formats of the digital economy are going against the trend, growing despite unfavorable circumstances and thus showing enormous vitality. This shows that the high tech industry will continue to be a strong engine for Chinese economic development.

Currently, China has already launched the large-scale “new infrastructure” plan, and the Chinese government has again stressed the importance of accelerating the construction of new infrastructure such as the 5G network and data centers to provide support with macro policies. -economic to rebuild the supply chain. Days ago, the Qualcomm company announced that it had made an investment by bringing venture capital to three Chinese technology companies, which operate in sectors such as the Internet of Things, vertical AI applications and the use of 5G.

Currently, favorable conditions for the continued recovery of the Chinese economy are increasing and the prospects for economic development are improving. But at the same time, one must also realize that the Chinese economy is also facing difficulties and challenges caused by structural, institutional and cyclical problems. With the impact of the Covid-19 epidemic, the industrial chain and supply chain all over the world are facing high risks and growing protectionism. Inevitably, the Chinese economic trend is subject to great pressure, so China will have to make even greater efforts.

Also from a financial point of view, a good recovery from China is expected. Three important managers of Goldman Sachs Asset Management (“GSAM”) provided the following analyzes of the post-COVID Chinese political and economic framework and the outlook for equities and bonds.

The growth shock from COVID-19 is unprecedented and the ongoing recovery is gradual and segmented. The Chinese economy contracted nearly 7% on an annual basis in the first quarter. For comparison, during the global financial crisis (GFC), the Chinese economy slowed by 5 percentage points, reaching a minimum of 6% in a 12-month period. Factories are reopening and the use of production capacity is increasing, most of the large industrial enterprises have returned to work across the country and 75-80% of SMEs have restored their business. However, the service sector is lagging behind: while supermarkets and shopping malls are open, rates of recovery in catering and catering, as well as hotel occupancy, are lower. Consumption is improving, but there is some caution due to concerns about employment and income growth.

Exports will be the last to recover, as external demand for China will suffer a negative impact due to the global fallout of the coronavirus. The IMF expects 1.2% Chinese growth in 2020 while we expect -1% to 1% growth in the same year. In 2021 there will be a strong recovery.

Therefore, while the world is experiencing critical conditions due to Coronavirus, especially some states in Latin America, China has already started – forcefully – its process of economic recovery.

By Domenico Greco

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