A busy Beijing street during the "Golden Week" public holidays in October. After months of coronavirus lockdowns and restrictions, it was the first major holiday for Chinese people. Photo / Getty
Exports jumped and local governments engaged in a binge of debt-fuelled construction projects. Even consumer spending is finally recovering.
As most of the world still struggles with the coronavirus pandemic, China is showing once again that a fast economic rebound is possible when the virus is brought firmly under control.
The Chinese economy surged 4.9 per cent in the July-to-September quarter compared with the same months last year, the country's National Bureau of Statistics announced Monday. The robust performance brings China almost back up to the roughly 6 per cent pace of growth that it was reporting before the pandemic.
Many of the world's major economies have climbed quickly out of the depths of a contraction last spring, when shutdowns caused output to fall steeply. But China is the first to report growth that significantly surpasses where it was at this time last year. The United States and other nations are expected to report a third-quarter surge too, but they are still behind or just catching up to pre-pandemic levels.
China's lead could widen further in the months to come. It has almost no local transmission of the virus now, while the United States and Europe face another accelerating wave of cases.
The vigorous expansion of the Chinese economy means that it is set to dominate global growth — accounting for at least 30 per cent of the world's economic growth this year and in the years to come, Justin Lin Yifu, a Cabinet adviser and honorary dean of the National School of Development at Peking University, said at a recent government news conference in Beijing.
Chinese companies are making up a greater share of the world's exports, manufacturing consumer electronics, personal protection equipment and other goods in high demand during the pandemic. At the same time, China is now buying more iron ore from Brazil, more corn and pork from the United States and more palm oil from Malaysia. That has partly reversed a nosedive in commodity prices last spring and softened the impact of the pandemic on some industries.
Still, China's recovery has done less to help the rest of the world than in the past because its imports have not increased nearly as much as its exports. This pattern has created jobs in China but placed a brake on growth elsewhere.
China's economic recovery has also been dependent for months on huge investments in highways, high-speed train lines and other infrastructure. And in recent weeks, the country has seen the beginning of a recovery in domestic consumption.
The affluent and people living in export-oriented coastal provinces were the first to start spending money again. But activity is resuming now even in places like Wuhan, the central Chinese city where the new coronavirus first emerged.
"You've had to line up to get into many restaurants in Wuhan, and for Wuhan restaurants that are popular on the internet, the wait is two or three hours," said Lei Yanqiu, a Wuhan resident in her early 30s.
George Zhong, a resident of Chengdu, the capital of Sichuan province in western China, said that he had made trips to three provinces in the last two months and has been actively shopping when he is home. "I spend no less than in previous years," Zhong said.
China's economic growth in the past three months came in slightly below economists' forecasts of 5.2 per cent to 5.5 per cent. But the performance was still strong enough that stock markets in Shanghai, Shenzhen and Hong Kong rose in early trading Monday.
China's broadening recovery could also be seen in economic statistics just for September, which were also released Monday. Retail sales climbed 3.3 per cent last month from a year ago, while industrial production was up 6.9 per cent.
China's model for restoring growth may be effective, but may not be appealing to other countries.
Determined to keep local transmission of the virus at or near zero, China has resorted to comprehensive cellphone tracking of its population, weekslong lockdowns of neighbourhoods and cities and costly mass testing in response to even the smallest outbreaks.
China's rebound also comes with some weaknesses, particularly a surge in overall debt this year by an amount equal to 15 per cent to 25 per cent of the economy's overall output. Much of the extra debt is either borrowing by local governments and state-owned enterprises to pay for new infrastructure, or mortgages taken out by households and companies to pay for apartments and new buildings.
The government is aware of the risk of letting debt accumulate quickly. But reining in new credit would hurt real estate activity, a sector that represents up to a quarter of the economy.
Another risk to China's recovery is its heavy dependence on exports. The surge in exports in the last three months, along with lower prices for imports of commodities, accounted for a big chunk of economic growth, one of the largest shares of any quarter in a decade. Exports represent more than 17 per cent of China's economy, more than double the proportion that they make up in the US economy.
China's leaders recognize that the country's exports are increasingly vulnerable to geopolitical tensions, including the Trump administration's moves to unwind trade relations between the United States and China. Shifts in global demand might also threaten exports, as the pandemic batters overseas economies.
Xi Jinping, China's top leader, has increasingly emphasised self-reliance, a strategy that calls for expanding service industries and innovation in manufacturing, as well as enabling residents to spend more.
"We need to make consumers the mainstay," said Qiu Baoxing, a Cabinet adviser who is a former vice minister of housing, at the news conference in Beijing. "By focusing on domestic circulation, we are actually enhancing our own resilience."
But empowering consumers has long been a challenge in China. Under ordinary circumstances, most Chinese are compelled to save for education, health care and retirement because of a weak social safety net. The economic slowdown, and the pandemic, have meant lost jobs, compounding the problem, particularly for low earners and rural residents.
Beijing's approach to helping ordinary Chinese during the slowdown has been to provide companies with tax rebates and large loans from state-owned banks, so that businesses would not need to lay off workers. But some economists argue that Beijing should instead be handing out coupons or checks to more directly assist the country's poorer citizens.
Millions of Chinese migrant workers endured at least a month or two of unemployment in the spring as factories were slow to reopen after the epidemic. Young Chinese found themselves dipping into their savings to eat or taking on second jobs to make up for slashed wages.
But Chinese government economists are wary of providing direct payments to consumers. They say that the government's priorities are investment-driven growth and measures to improve productivity and quality of life, such as digging new sewage systems or adding elevators to 3 million older apartment towers that lack them.
"We've seen a lot of suggestions to increase consumption, but the crux is to enrich people first," said Yao Jingyuan, a former chief economist of the National Bureau of Statistics who is now a policy researcher for the Cabinet.
Western governments have experimented with providing extra-large unemployment checks, one-time payments and even subsidised meals at restaurants. These payments have been aimed at helping families sustain a minimum standard of living through the pandemic — which in turn has fueled demand for imports from China.
Michael Pettis, a finance professor at Peking University, said that as people in other countries supported by government subsidies continue to turn to China for products during the pandemic, "we're going to see a resurgence of trade conflict, and not just US-China, but global."
Written by: Keith Bradsher
Photographs by: Keith Bradsher
© 2020 THE NEW YORK TIMES
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