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Chinese GDP: five things to look out for – Current Globe News

Chinese GDP: five things to look out for


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The Chinese economic wave in the first quarter was primarily a reflection of how much the world’s second-largest economy was hit by the Covid-19 pandemic early last year, not the strength of its recovery.

While gross domestic product increased by more than 18 percent from year to year between January and March, its increase in the last quarter of 2020 was only 0.6 percent.

China is expected to release a year-on-year headline of about 8 percent when the Central Bureau of Statistics released its second-quarter growth estimate on Thursday. The focus, however, will be on signs of economic sluggishness and whether these are worrying enough for the government to be able to adjust policy.

Here are five things you need to look out for after Thursday’s announcement.

Will the growth of industrial production and investment in fixed assets slow down?

The Chinese economy received a major boost from industrial production, which grew 24.5 percent year-on-year in the first quarter, and investment in fixed assets, which grew 25.6 percent year-on-year in March.

Both are linked to a debt-driven, “low-quality” growth model led by Chinese officials. Liu He, the deputy prime minister, wants to step back, but is tolerated to help the country recover from the pandemic. In recent months, they have softened. In May, the growth of industrial production increased by 15.4 percent on an annual level, while the annual increases in investments in fixed assets in April and May fell below 10 percent.

Will China enter a new cycle of concessions?

The National Bank of China on Friday reduced the amount of reserves that banks must maintain by 50 basis points, to 8.9 percent on average. It was the first such reduction since March 2020.

Analysts are divided if the central bank will now accelerate monetary easing. Wei Yao, an economist from the Société Générale, thinks he will. “This tool is never used when the economy is doing well,” she noted, adding that it is likely that another reduction in reserves will be before the end of the year, as well as a possible reduction in interest rates in 2022.

Others, however, took the central bank at its word when they said last week’s reduction in reserves was mainly aimed at curbing reduced liquidity as medium-term loans point out.

“The main purpose of the reduction is to reduce costs for companies by reducing costs for banks,” said Larry Hu, China’s chief economist at Macquarie. “We don’t think so [the] the cut signals a new mitigation cycle or worse than the expected economic slowdown. “

Will Liu’s goal of tackling financial risks outweigh concerns about the economic slowdown?

The reduction in PBoC reserves came just two days after the state council, the Chinese cabinet, called on him to do so. But the central bank ignored a similar call from the government in June 2020, a sign of continuing tension between officials concerned about financial risks and those more concerned about boosting growth.

Those in Liu’s camp are worried that looser monetary policy could encourage reckless borrowing, which has contributed to a wave of waves. default values ​​of bonds in China’s two largest industrial provinces last year. China is the biggest bad debt manager and some of the country’s largest investors are also struggling to restructure their debts.

“China is running out of time to deal with a mountain of bad debt and the resulting financial risk,” said Diana Choyleva of Enodo Economics, adding that 2021 would probably be a “distinctly binary year” for the Chinese economy.

But supporting economic growth is always a priority during crises like the pandemic, as well as on the eve of important political events such as the Chinese Communist Party celebrating its centenary this month. This tension will continue as the party tries to find a balance between boosting growth and reducing financial risks ahead of the party’s 20th congress next year, at which President Xi Jinping is expected to begin a third term unprecedented in power.

Will local government spending constraints be eased?

One of the signs of winning the policy argument will be the issuance of bonds and investment by local financial institutions, which play a role central role in infrastructure investment.

Total infrastructure investment fell 3.6 percent year-on-year in May, the first annual decline since last year’s Covid outbreak in Wuhan and shut down much of China’s economy. The issuance of special purpose bonds in the first five months of this year amounted to only 1.2 million KM (186 billion USD), compared to 2.3 million Rmb in the same period last year.

Will China’s Covid strategy stifle growth?

Although China is on track to fully vaccinate 70 percent of its population by the end of the year, it is showing no signs of abandoning its “zero-Covid” pandemic. This is likely to limit incoming and outgoing travel to a negligible level at least until next year’s Winter Olympics in Beijing, while taking extreme measures whenever an epidemic breaks out. A draconian response to the recent cluster infection in one of the largest ports in the country has resulted in major disruptions for exporters.

It is a reminder that, although China has successfully suppressed the pandemic, its impact on some sectors of the economy will continue to be felt next year, if not longer.


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