News Article

China’s economy improves in second quarter following steep decline

China’s economy returned to growth in the second quarter after a steep decline at the beginning of the year, but domestic consumption and investment remained sluggish as the shock from the coronavirus crisis underscored the need for more government support to fuel the recovery.

The gross domestic product numbers, as well as crucial June indicators, will be closely watched around the world, particularly as many countries are still grappling with the COVID-19 pandemic, even as China has largely managed to control the outbreak and has started to reboot its economic engines.

The National Bureau of Statistics said on Thursday that GDP had risen 3.2 per cent in the second quarter from a year earlier, quicker than the 2.5 per cent estimated by analysts in a Reuters survey, as lockdown policies came to an end and policymakers ramped up stimulus to battle the pandemic-led downturn.

The rebound was still the lowest growth reported and followed a sharp 6.8 per cent slump in the first quarter, the first such contraction since the quarterly GDP reports started in 1992.

“While it’s fair to say the numbers are beating forecasts, what the numbers also show is that we’re seeing the China consumer remaining behind in terms of the turnaround narrative,” said Rodrigo Catril, a foreign exchange strategist at NAB in Sydney. “It’s pretty much a government stimulus-led recovery story, which is extremely focused on the industrial side.

The consumer remains highly cautious. That cautiousness is what the market is looking at in terms of countries where the consumer plays a more significant role, so that’s clearly important for the U.S. as well.”

Indeed, the downturn in demand has been telling.

Wanda Film, China’s biggest cinema chain operator, with more than 600 cinemas, announced Tuesday that it expects to report a net loss of between 1.5 billion and 1.6 billion yuan (¥22.9 billion to ¥24.45 billion; $214 million to $228 million) after the coronavirus shut down its cinemas for pretty much the entire period. In the same period last year, the company posted a net profit of 524 million yuan.

The travel delays caused by the pandemic have also affected Chinese airlines and their foreign counterparts. China’s Civil Aviation Administration has said that China’s aviation industry lost 32.45 billion yuan in the second quarter.

In the first half of the year, the economy fell 1.6 per cent from a year earlier, the data reported, highlighting the widespread effects of the health crisis.

On a quarter-on-quarter basis, GDP in the April-June period soared 11.5 per cent, the NBS reported, compared with forecasts for a 9.6 per cent growth and a 10 per cent decrease in the previous quarter.

China’s economy, the world’s first to be rocked by the coronavirus pandemic, has slowly stabilised over the last two months, but the recovery from the virus-induced slowdown has been erratic.

Authorities are widely expected to retain policy support in the second half to assist the recovery, amid worries about growing debt risks.

Ruan Jianhong, head of the central bank’s statistics department, said last week that China’s macro leverage ratio soared 14.5 percentage points in the first quarter and proceeded to rise in the second quarter. No information on the actual debt level was provided.

The Institute of International Finance estimates that China’s overall debt in the first quarter of 2020 rose to 317 per cent of gross domestic product, up from 300 per cent in late 2019 and the highest quarterly increase ever recorded.

The government has rolled out a series of measures, including further fiscal spending, tax concessions and reductions in lending rates and banks’ reserve requirements, to revive the coronavirus-ravaged economy and boost employment.

In some countries, including the United States, rising coronavirus infections have overshadowed improved demand for Chinese exports, while heavy domestic employment losses and persistent health issues have kept consumers cautious.

Industrial production in China increased by 4.8 per cent in June from a year ago, the data showed, quickening from a 4.4 per cent rise in May. That marked the vast sector’s third straight month of growth, giving the economy some relief as it struggles to recover its footing.

Nevertheless, consumption and investment remain weak. Retail sales were down 1.8 per cent year-on-year, the fifth straight month of decline and much worse than an expected growth of 0.3 per cent, following a 2.8 per cent fall in May. Fixed asset investment dropped 3.1 per cent in the first half of the year from the same period in 2019, compared with an expected 3.3 per cent decrease and a 6.3 per cent decline in the first five months of the year.

CIMB Bank - Best exchange rate SG > MY

Login to your account below

Fill the forms bellow to register

Retrieve your password

Please enter your username or email address to reset your password.