Citigroup Says China’s Economic Recovery Accelerating

As much of the world tries to prevent new cases of coronavirus from stalling a fragile recovery from recession, China’s economy is picking up steam again and will end the year with stronger growth than ever..

The world’s second largest economy was the only one on the planet to avoid a recession this year. According to the World Bank’s summer forecasts, this year China’s GDP will grow by 1.6%, and the global economy as a whole will contract by 5.2%..

China has achieved relatively quick recovery through several measures, including lockdown and population-tracking policies, aimed at containing the virus. The government has also committed hundreds of billions of dollars to major infrastructure projects and offered monetary incentives to stimulate spending among the public. The payback is clear as tourism and spending rebounded during a busy holiday season. «Golden of the week» last week.

By the end of the year, China’s share of global GDP is likely to grow by about 1.1%, according to CNN Business calculations using data from the World Bank. This is three times more than in 2019.

Overall, China’s economy is expected to be worth about $ 14.6 trillion by the end of 2020, equivalent to about 17.5% of global GDP..

According to Larry Hu, Macquarie Group’s chief economist for China, even without the disruption caused by the virus, China’s share would still grow this year. But China’s ability to counter the global trend increases its importance to the global economy..

«Recovery in China is much faster than in the rest of the world», – added Hu.

The improvement in the economy became evident in the annual Chinese holidays «Golden week».

According to the Ministry of Culture and Tourism, during «Golden of the week», which ended on Thursday, more than 630 million people took part in the travels. This is almost 80% of the number of travelers in the same period last year..

Travel spending, meanwhile, has rebounded to nearly 70% of last year’s level, reaching $ 70 billion. And movie ticket sales during Golden Week topped $ 580 million, just 12% less than last year’s all-time high..

Holiday week numbers "are encouraging", – said Hu from Macquarie.

«As life in mainland China returns to normal, consumption, especially consumption of services, is recovering», – he said, adding that pent-up demand has finally freed up.

Even before the holiday, China’s economy was gaining momentum.

The official indicator of manufacturing activity in September rose to a six-month high. A private survey by small business measurement media group Caixin also showed the sector continued to expand in the past month..

The service industry is doing well as well. An official poll released last week showed activity here peaked at its highest level in nearly seven years. And on Friday, a Caixin poll showed the service sector experienced one of the fastest growth rates in a decade in September..

«In general, the economy remained in a post-epidemic recovery phase and improved at a faster pace.», – noted Wang Zhe, senior economist at Caixin Insight Group, in a report accompanying Friday’s data.

Consumer spending is also recovering, which is another encouraging sign. Earlier this year, economists were concerned that China’s recovery was too unbalanced due to a large number of government infrastructure projects and insufficient consumer spending..

And despite trade tensions, China’s economy has also benefited from its vital role in global supply chains, according to Luis Kuijsa (Louis Kuijs), Chief Asia Economist at Oxford Economics. The research and advisory group’s own calculations also show that China will increase its share of global GDP by about a percentage point this year..

The Chinese economy is recovering at a faster pace

«Contrary to expectations … of changes in global supply chains outside of China, it looks like, at least for now, China’s success in getting rid of the Covid-19 outbreak and keeping the industry running has solidified its role in global value chains.», – considers Kuijs. He noted that U.S. foreign direct investment in China actually rose 6% in the first half of this year, according to data from China’s Ministry of Commerce..

«Despite the fact that tensions between the United States and China have escalated in recent years, many US multinationals remain interested in working with China.», – Kuijs said, adding that US firms were likely encouraged by Beijing’s decision to remove some of the barriers to investing in the country’s financial sector..

As in other countries, according to analysts at Fitch Ratings, the pandemic has taken a heavy toll on the poor and rural population of China..

According to World Bank estimates based on data from the Chinese government, the average monthly income of rural migrant workers fell nearly 7% in the second quarter from a year earlier. These are hundreds of millions of people who usually work in construction, manufacturing and other low-paid but vital activities..

Low-income families in China – those earning less than $ 7,350 a year – have experienced the most severe declines in family wealth compared to any other population group, according to a joint survey by the Southwestern University of Finance and Economics of China and Ant Group research..

«This suggests that the recent recovery in consumption may have been somewhat biased towards higher income groups.», – say analysts at Fitch Ratings.

And Oxford Economics’ Kuijs said tensions between the U.S. and China remain an issue, even as foreign direct investment rises..

According to him, if the United States «significantly separate from China», the country’s growth rate will decline by less than half a percentage point per year until 2040 if other developed countries retain most of their ties to the Middle Kingdom.

But if other developed countries join the United States, the expert suspects that the impact could be much greater, causing China’s GDP growth to fall twice as fast over the same period..

«Such a significant denouement will sharply reduce the country’s productivity and GDP growth.», – believes Kuijs.

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