China’s economy on recovery path, challenges ahead

Beijing: China’s economic activities continued to normalize as the latest data on industrial output, retail sales and investment showed across-the-board improvements, but the recovery still faces uncertainties and challenges from the global spread of the novel coronavirus.

The industrial sector was among the quickest to rebound from the impact of the virus, with the value-added industrial output returning to growth last month, the first expansion since the virus outbreak as factory activities recovered amid easing containment measures.

The value-added industrial output went up 3.9 percent year on year in April, rebounding from the 1.1-percent drop in March and 13.5-percent slump seen in the first two months of the year, according to data from the National Bureau of Statistics (NBS) Friday.

Adding to the recovery signs, the index measuring services production fell 4.5 percent last month, narrowing from 9.1 percent in March, while retail sales of consumer goods went down 7.5 percent, recovering from a drop of 15.8 percent a month earlier.

Fixed-asset investment declined 10.3 percent in the first four months, with the fall narrowing by 5.8 percentage points compared with the decrease in the first three months.

With consolidated epidemic control efforts and the restoration of economic activities, major indices have sustained the improving momentum since March, the NBS said in a statement.

“But it is still challenging for the economy to wipe out the severe shocks incurred by the epidemic,” said NBS spokesperson Liu Aihua at a news briefing in responding to a query about when the Chinese economy could return to growth.

China’s economy shrank by 6.8 percent year on year in the first quarter (Q1) as the virus outbreak dealt a huge blow to economic activity. While the epidemic has been basically brought under control at home, the global spread of the virus and collapsing external demand will complicate the future recovery of the world’s second-largest economy.

Despite the uncertainties, Liu stressed confidence in the economy as the fundamentals and the trend of upward momentum in the long term have not changed, citing the country’s economic scale, strong resilience, emerging new drivers and flexible macro policies as among the major factors underpinning growth.

As the virus has continued to spread overseas, China will timely adjust its response policies to push the full normalization of its economy, Liu said.

Facing the economic shocks from the epidemic, China has increased policy support for the monetary and fiscal fronts to restart the economy and help businesses, especially small ones, to tide over difficulties.

Commenting on the data, Wen Bin, chief analyst at China Minsheng Bank, said the bottleneck in China’s economic recovery has shifted from business and production resumption along the industry chain to yet-to-fully-recover demand.

Stronger macro policies should follow to spur the rebound in demand, including implementing further cuts to reserve requirement ratios and increasing the scale of local government bonds, Wen said.
In a research note ahead of the National People’s Congress annual session scheduled to open on May 22, China International Capital Corporation Limited (CICC), an investment bank, said it expects more flexible targets for economic growth and stronger counter-cyclical macroeconomic policy.

The CICC predicts that the deficit ratio will rise by 3 to 4 percentage points and stabilizing employment will likely be the top priority of government work in 2020.

Friday’s data also showed China’s job market remained generally stable in April, with the surveyed unemployment rate in urban areas standing at 6 percent, 0.1 percentage points higher than that in March.