BEIJING – After a year of pulling the global economy out of the pandemic slump, China’s growth is now starting to stabilize, as the world tries to assess whether the country’s recovery will continue or falter.
The signs are mixed, with consumers and businesses showing signs of both weakness and strength. Rising raw material costs are eating into profits for factories and retailers, while exports remain strong. People are buying more, but small businesses are hurting. Inflation is starting to make a comeback, confusing the data. And the lingering uncertainty of the pandemic hangs over it all.
“It is not clear whether such a strong rebound in China and the world can be sustained in 2022,” said Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance.
China said Thursday that its economy grew 7.9% from April to June, compared to the same period last year, below estimates. While that pace is still stronger than in many other countries, it is significantly slower than the 18.3% jump the economy made in the first three months of the year as it rebounded after blockages a year earlier.
Economists have warned that China’s real economy is not as strong as figures released Thursday might suggest. Inflation means that some statistics, like retail sales in June, overstate what’s really going on. The rise in prices also means that the performance of the Chinese economy in the spring may not be sustainable.
China’s ultimate trajectory will be closely watched by the world. If its economy slows down further, it could drag the rest of the global economy down. Many countries now depend on Chinese factories and consumers. If China continues to move forward, that could portend a sustained recovery for the United States and other countries now recovering from their pandemic lows.
The Chinese government has sent out a series of recent signals indicating that economic growth may be struggling. Premier Li Keqiang held three high-level meetings last week on the health of the economy and issued statements after each, ordering a storm of measures to support growth.
The most important of these measures has been a change in central bank policy. China’s central bank has decided to help small businesses get loans; from Thursday, commercial banks can keep somewhat smaller liquidity reserves. In theory, this allows banks to lend more, which could boost business investment and consumer spending.
A mountain of accumulated debt weighs on the country’s economy. And China Beige Book, a quarterly survey of businesses across China, found in recent weeks that many borrowers, especially retailers, have become cautious about taking out loans. Businesses fear that they will not be able to repay additional loans.
Growth in the April to June quarter was still expected to be lower than the strong growth reported by China in the first three months of the year. The first quarter growth rate was skewed in part because it reflected how much the country’s output rebounded after declining in the first three months of 2020, when the pandemic closed factories and closures were imposed Across the country.
Daily business briefing
The latest data could signal the limits of China’s post-pandemic recovery.
“China has experienced a very rapid pace of recovery over the past year – it will be difficult to maintain that pace,” World Bank President David Malpass said at a press conference just before the publication. of the latest data.
Barclays Bank said in a research note that China appears to have moved into a new range of annual growth of 5-5.5%. Although considerably better than the growth of most Western countries, it is slower than the 6 to 6.5% growth that China experienced before the pandemic.
“In our country, the economic recovery is unbalanced,” said Liu Aihua, spokesperson for China’s National Bureau of Statistics. “Additional efforts are needed to consolidate the foundations for a steady resumption of development. “
Some of the problems Chinese companies face are common across the world. Globally, raw materials like iron ore, copper and petroleum have become more expensive over the past year, as have industrial materials like steel.
For Song Liyun, a stove and range hood seller in Jinan, a city in eastern China, rising global steel costs have caused wholesale prices to rise 30 to 40 percent, which she has had to pay for. absorb a large part. “The cost of materials has increased, but the price that we are offering to customers can hardly increase,” she said.
The survival of small businesses now has an even bigger bearing on how China can weather the pandemic and keep people working. Over 100 million people work in retail and wholesale businesses.
Retail sales rose 12.1% in June from a year earlier, according to the National Bureau of Statistics of China. Most economists expected retail sales to be weak this month. Car sales had fallen sharply and new outbreaks of Covid-19 in Guangdong triggered the lockdown of large neighborhoods and restrictions on social gatherings and travel. Ms. Liu, a spokeswoman for the statistics bureau, said an increase in online spending has helped retail sales as Chinese consumers stock up on home electronics.
But the increase in retail sales could also have been the result of rising prices, which can give the impression that economic activity is substantial even when it is not growing very much. The broadest measure of prices in the Chinese economy jumped 5.3% from April to June compared to the same period last year, according to calculations by CEIC Data, an economic data provider. This is the biggest jump in nearly a decade, fueled by rising global commodity prices.
Retail sales have also reportedly been hit by a slowdown in tourism and other service industries in recent weeks.
Passenger train travel, including high-speed trains which are now the dominant form of intercity travel in China, fell 19.9% in June compared to the same month in 2019, before the pandemic. In contrast, passenger rail traffic fell only 4.5% in May compared to two years earlier.
The weakness of the domestic travel industry can be seen in Qufu, Confucius’ hometown, 160 km south of Jinan. Few tourists walked the streets on Sunday and Monday, and many stores were empty.
Business owners in the city said they only had half as many tourists as before the pandemic.
“It’s not easy for anyone now,” said Xiao Weijun, owner of a cheap restaurant near the temple where Confucius’ house stood 2,500 years ago. “I have a feeling that our lives will not be able to recover in a year or two. “
Li you and Liu Yi contributed research.