China’s economy roared back to pre-pandemic growth rates in the fourth quarter of last year as its industrial engines fired up to meet surging demand for exports, pushing the full-year expansion beyond estimates and propelling its global advance.
Gross domestic product climbed by 6.5 per cent in the final quarter from a year earlier, pushing growth to 2.3 per cent for the full year. That leaves the world’s second-largest economy driving global growth and potentially passing the GDP of the United States sooner than expected.
The recovery from the biggest slump on record was engineered by getting Covid-19 under control and deploying fiscal and monetary stimulus to boost investment.
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A 6.8 per cent contraction in the first quarter because of Covid-19-related lockdowns was seen as a sign of worse things ahead by many analysts, some of whom expected a near-total collapse of the Chinese economy.
But on Monday, 361 days after those initial lockdowns, the central government announced that the turnaround was complete. The national economy is now growing more quickly than it was before the pandemic.
While 2.3 per cent economic growth for the whole of 2020 is the lowest since 1976, it marks a faster GDP growth rate than almost anyone predicted early in the year. And it comes as many other nations remain in the throes of the pandemic.
At a press conference on Monday, Chinese officials were triumphant. Ning Jizhe, head of the National Bureau of Statistics (NBS), said the economic recovery “will go down in history”.
“These achievements have been achieved while the pandemic is raging around the world, the world economy is in a severe recession, and the external environment [for China] is more complicated and severe. They were hard won,” Ning said.
Economists expect China’s GDP will expand by 8.2 per cent this year, continuing to outpace global peers even as they begin to recover due to a roll-out of vaccines.
Monday’s data release for 2020 came loaded with symbolism that has already been seized upon in government press releases and state media.
It was the first year in which China’s economic size expanded beyond the 100 trillion yuan (US$15.43 trillion) mark. China also produced 1 billion tonnes of steel for the first time last year.
And last week, it announced that its trade surplus with the rest of the world swelled to an all-time high, as it churned out the face masks and ventilators used to fight Covid-19 outbreaks the world over, and the laptops and office equipment used to work from home.
But over the same period, in less-remarked-upon numbers, debt levels soared.
An International Monetary Fund (IMF) report this month found that corporate debt to GDP rose by 10 percentage points to 127 per cent last year, after falling by the same amount over the previous few years.
Household debt rose to 58.3 per cent of GDP in 2020, up from 55.6 per cent in 2019. The IMF found that local government debt rose to 25 per cent of GDP by the end of last year, even as their revenue streams were slowing.
The recovery model has attracted criticism from some observers of the Chinese economy, who pointed to retail sales falling by 3.9 per cent, even as industrial production rose by 2.8 per cent.
Michael Pettis, a finance professor at Peking University, said that in turning to its old playbook of growth, China had prioritised a “worsening of the healthy parts of its economy by unleashing enough of the unhealthy, non-productive growth it has long tried to constrain”, namely real estate and infrastructure.
“It performed badly, like the rest of the world, and it is only because Beijing sharply increased all the things it has been trying to rein in that the GDP measure was able to rise,” Pettis tweeted. “To say that China was the only major economy to grow in 2020, in other words, is only to say that we are unable to distinguish between GDP and the economy.”
Others point to the political expediency of the numbers, which were inflated by regular, timely downward revisions of historical data, meaning 2020’s figures were growing from a lower base level.
“The frequency and scale of these quiet changes, without a clear explanation by NBS, means that we’re struggling with a much more opaque picture of the economy,” said Nick Marro, global trade lead at the Economist Intelligence Unit. “This isn’t to suggest growth isn’t happening – it definitely is – but that the optics of strong growth are still incredibly important to China’s leaders.”
The growth figures cover a year in which China continued to joust with the United States and pursued aggressive foreign and trade policies against the likes of Australia and India.
Trey McArver, a partner at economic consultancy Trivium China, added that the “comparatively strong economic performance in 2020” meant that “Chinese authorities understood that controlling the virus was a precondition to getting the economy back up and running. China’s relatively strong growth in 2020 is because authorities made it their top priority to control the virus”.
The basic impression that I get is that people [in China] are quite justifiably proud of the way that the system has responded and enabled life to get … closer to normal than anywhere else in the world
Arthur Kroeber, Gavekal Dragonomics
At a seminar in Beijing in December, Arthur Kroeber, founding partner of Gavekal Dragonomics, a China-focused economic research consultancy, recalled China’s initially botched handling of the virus.
“I think there are plenty of people, maybe not speaking super openly, who remain quite critical of the initial response in Wuhan in January, and I think there are a lot of unanswered questions about that,” Kroeber said.
“But fundamentally, the basic impression that I get is that people here are quite justifiably proud of the way that the system has responded and enabled life to get … closer to normal than anywhere else in the world.
“So, in terms of if it was a win for the Chinese system, I think basically yes – it was a win for the Chinese system.”
Additional reporting by Bloomberg
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