Li Aifei still has concerns about her family’s financial prospects. Her husband’s income from online advertising has plunged as advertisers have cut their budgets, so the whole family is relying on her small convenience store in Mianyang, Sichuan province, to cover utility bills, kindergarten tuition and daily expenses.
But Li also feels that the worst is behind them, as the coronavirus has been contained in most of China and shoppers are returning. Her daily sales revenue recently has nearly matched what she was registering before the coronavirus.
“We are doing OK because people still need to buy daily necessities,” she said. “The impact on other discretionary items, such as clothes, has been far bigger.”
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
Millions of Chinese families like Li’s were affected by the unprecedented outbreak, which was first reported in China and has resulted in more than 38 million infections and 1 million deaths worldwide. Despite a rise in the headline growth rate, the damage done to consumer sentiment and the small business environment has been significant.
On Monday, China is expected to report a third-quarter economic growth rate of 5.5 per cent, according to the median result of a Bloomberg poll of economists, accelerating from the 3.2 per cent rise recorded in the second quarter and just below the pre-pandemic growth rate of 6 per cent in the fourth quarter last year.
The National Bureau of Statistics is due to release the quarterly headline growth figure, along with figures for industrial production, retail sales, fixed-asset investment and the surveyed unemployment rate at 10am on Monday, China time.
China’s rapid recovery follows its swiftness in bringing the pandemic under control, combined with a 9-trillion-yuan (US$1.34 trillion) stimulus to reboot the economy. After the government splashed out on infrastructure projects, coupled with a strong rebound in the property market, exports and consumer spending picked up in the past quarter.
“The key growth engines are very strong exports and the gradual improvement in domestic consumption,” Morgan Stanley said in a note last week.
China’s exports rose 9.9 per cent last month – the biggest increase since March 2019, government data shows.
Due to China’s “faster than expected” recovery, the International Monetary Fund revised up its expectation for the nation’s growth rate this year to 1.9 per cent from 1 per cent, though its forecast for next year remained unchanged at 8.2 per cent.
Policymakers should prolong the normalisation process to reduce the impact [on jobs and incomes]
Yu Chunhai, Renmin University
Despite the return to growth, Beijing is expected to continue its efforts to consolidate the momentum of steady economic recovery and prepare for the possible economic impacts of growing external hostility.
However, Yu Chunhai, an economics professor at Renmin University of China, warned that consumer spending could decline and many small businesses may struggle once policy normalisation begins.
“The current government stimulus is intended to keep a majority of market entities alive. However, a reshuffling of businesses – with many going bust while new businesses form – is inevitable once the supportive [government] policies are ended. It will eventually have an impact on jobs and incomes,” he said.
“Policymakers should prolong the normalisation process to reduce the impact,” he suggested.
The aggregate financing in China’s economy – including bank loans, bonds and other financing to businesses and households – reached 29.6 trillion yuan in the January-September period, very close to the full-year target of “more than 30 trillion yuan” suggested by central bank governor Yi Gang in June.
However, the central bank has signalled that it will continue to provide additional financial support for the economy, vowing to maintain a “reasonably ample” liquidity level and allow a temporary rise of the nation’s debt burden.
Wen Bin, chief analyst at the Beijing-based China Minsheng Bank, said that a stronger economic footing is needed to counter the international trend toward deglobalisation and growing foreign hostility towards China.
“China’s development faces many uncertainties,” he said. “We must strengthen our [economic] foundation. This will require a continuation of existing policy support and a shift of focus to the domestic market.”
At the same time, “more targeted and differentiated credit tools are needed to help small businesses,” he said.
On Monday, Premier Li Keqiang vowed to ensure positive economic growth this year. The State Council, the government cabinet, announced plans to provide more support for the nation’s most vulnerable groups, including migrant workers, university students and small business owners such as Li Aifei.
“The overall environment has been not good this year. Everyone is affected,” Li Aifei said.
The People’s Bank of China has also said that businesses hit hardest by the pandemic will be allowed to defer their loan repayments – those maturing by the end of this year – until March, with penalty payments waived.
London-based research firm Capital Economics warned that China’s debt burden could worsen if policymakers push more resources to inefficient state firms.
“With the chances of major market-opening reforms diminishing, especially amid pressure to reduce dependence on the West, we expect trend growth to slow significantly over the decades ahead,” its research note predicts.
More from South China Morning Post:
- No paper, no cups: China’s local authorities further tighten their belts as coronavirus, tax cuts weigh heavy
- China ‘golden week’ holiday spending rebounds from coronavirus with daily spending up 4.9 per cent on year
- China’s economic growth to be 2 per cent in 2020 but coronavirus to keep Asia’s growth at lowest since 1967, World Bank warns
- China looks beyond GDP growth rate as Beijing outlines five-year plan and 2035 vision amid rivalry with US
- China sets date for top Communist Party meeting for first five-year plan since pandemic
This article China GDP: economic growth in third quarter neared pre-coronavirus level, economists forecast first appeared on South China Morning Post