China

Handle comments on Chinese GDP growth carefully – exemplified by Q1

Thursday, April 22nd, 2021

The National Bureau of Statistics (NBS) in Beijing published a couple of days ago the preliminary numbers for GDP growth during the first quarter 2021. An increase of 18.3 % was noted year on year (yoy) – highly appreciated by many commentators also in our part of the world. Sure, a number of them pointed also at the weak GDP development in the same period last year due to the corona shutdown. Consequently, the numerically strong GDP rise yoy in Q1 could be expected. But is the published number really reflecting very strong growth?

Modest growth in Q1compared to Q4

Despite frequently still existing – historically caused – doubts about transparency and quality of Chinese GDP statistics it should not be questioned that China had a remarkable recovery in the second half of 2020. However, there is a catch: Compared to Q4 last year, recent official GDP growth for Q1 looks much more modest (+0.6% qoq). We even can observe a slowdown compared to previous quarterly changes.

Chinese official statistics show the following numbers according to NBS:

GDP changes yoy

GDP changes qoq (%)

Q 1  2021

18.3

0.6

Q 4  2020

6.5

3.2

Q 3  2020

4.9

3.1

Q 2  2020

3.2

10.1

Q 1  2020

-6.8

-9.3

Q 4  2019

5.8

1.6

Q 3  2019

5.9

1.3

Re-newed acceleration in the cards – growth goals will be met

I have not found any illuminating comments on the GDP development of the first quarter this year. Sure, there were the new-year celebrations with production shortfalls. We also noticed softer PMI subindicators for March (new orders, production). But what else can be added? More transparency would have been nice.

However, it cannot be ruled out that some strengthening growth took place already at the end of Q1. Re-newed statistical acceleration of GDP growth will probably start in Q2, due to improving international demand in the first place. Altogether, China will most probably continue to be on track to meet the official objective of “more than 6 percent GDP growth”. 7-8 % seem to be achievable in 2021.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Rapid GDP growth likely in Q1 in times of rising Chinese self-confidence

Wednesday, April 7th, 2021

China’s GDP result for the first quarter of 2021 will be spectacular. It could come in even closer to +20 % than to +10 % when comparing to the same quarter last year. However, such an enormous growth number should be analyzed very carefully – despite the fact that China in the beginning of 2021 will prove being the most rapidly growing major economy in the world.

It should be especially considered that the Chinese economy to a very high extent was locked down during the first quarter of last year. This low statistical base explains the current high growth rate. However, during the following quarters the Chinese economy recovered visibly, leading finally to a reasonable average GDP growth in 2020 by 2.3 %. The improving foreign demand contributed to the still ongoing Chinese recovery as well (without considering possible statistical quality problems in this article).

However, the improving GDP performance in the course of 2020 will lead to gradually decreasing quarterly growth rates during 2021 – but still good enough to (easily) meet the official objective for 2021 of more than 6 %.

Where does the growing Chinese self-confidence come from?

Analysts may have observed that the official China showed quite some increasing self-confidence during the past year(s). Certainly, I have wondered what this obvious development is based on. The following three different possibilities seem to be plausible (without specific order):

¤  Successful fight against covid-19.
The Chinese still feel very proud of their strategy of combating the covid-19 epidemic/pandemic. Even if transparency in this specific respect never has been quite clear, important efforts against the corona virus are also recognized by many observers outside China.

¤  Economic progress – the recovery after the covid-19 lockdown included.
China achieved very high GDP-growth rates during the past decades. This is well known. Looking back only a few quarters, it can be noted that China also had the fastest GDP turnaround in an international perspective after the big loss in last year’s Q1. This latter development can be regarded as a further injection for the rising self-confidence.

¤  The recognition of being a (global) political powerhouse.
For a long time, China made big efforts to receive broadly anchored international appreciation – particularly by referring to its economic progress.  More recently, however, China is also increasingly referring to its growing political strength and self-confidence at home and globally – not always for gaining (international) sympathy points.

Conclusion – the world now meets a superpower

Altogether, one may conclude that China’s economic progress has been contributing to the increased self-confidence of the political leadership. However, one may also argue the other way around. This would mean that the harsher political environment on the other hand may have provoked more positive messages about China’s good domestic and international economic future. Good economic prospects use to withdraw focus from politics, an experience from the past.

The obviously increasing Chinese self-confidence over time can therefore be derived from the finally achieved position as a political, economic and – not to forget – military global superpower. Thus, there are three sources for the described development of China’s considerable self-confidence which also induces quite some resilience against international sanctions. This is reality – whether the EU, the U.S. or other countries like it or not.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China’s NPC radiates growth confidence – as expected in the centenary year

Monday, March 8th, 2021

China’s still ongoing annual National Party Congress (NPC) gives a substantial number of short-term objectives and long-term strategies to the 3000 delegates. Celebrating in 2021 the 100-year anniversary of the Communist Party of China (CPC) makes this year’s convention quite special (as I pointed at in my latest blog from February 24 on http://chinaresearch.se/ ).

Interesting details from the NPC – with obvious growth optimism    

¤  Encouraging GDP objective for 2021. Going back to my own blog source above, I felt quite sure before this year’s NPC that Prime Minister Li Keqiang would please the delegates (in Chinese:”lawmakers”) with an encouraging GDP forecast for 2021, maybe between 7 and 8%. Indeed, this range was not very far away from Prime Minister Li’s finally announced goal for 2021 – “more than 6%” in economic growth. I may regard “more than 6%” as somewhat conservative but I see this number as positive as well. Even 7-8% this year remain achievable.
Conclusion: In my view, an official GDP growth by “more than 6%” is indeed an encouraging goal despite the relative weak statistical basis from last year – and not a cautious one as initially described by many international commentators. The inflation goal of 3 % for 2021 seems to be alright as well.                                                         

¤  Comeback for long-term issues. In the past quarters, Chinese and global analysts dealt strongly with short-term issues due to the damage that had been caused by the corona crisis. During this year’s NPC, also long-term objectives for high tech, clean energy, electric cars and other ways to improve the environment were taken up. However, I miss a more promising strategy for de-carbonization. President Xi Jinping also reminded of necessary improvements of education and healthcare. Remarkably, no numeric goal for GDP has been set for the recently commenced 5-year plan. My best guess is that it will turn out being something close to 5%.    
Conclusion:
Updated yearly GDP objectives should be good enough in the future for short-term and for 5-year planning – and also for improved flexibility.

¤  Continuous priority of innovation and technology. Prime Minister Li repeated at the NPC what is widely known: “Innovation remains at the heart of China’s modernization drive. We will strengthen our science and technology to provide strategic support for China’s development”. Despite the fact that all this is expressed only verbally, China’s technological ambitions have been underlined one more time.
Conclusion: Westerners should not underestimate the Chinese ability of spreading technology both internationally and of using it at home, for power-conserving reasons as well. The Chinese want to reduce their dependence from the U.S. – also by increasing their annual R&D budget by 7% yearly between 2021 and 2025. Green development is given a lot of priority. President Xi Jinping seems to favor the creation of a green-GDP concept, too.

¤  More priority for private consumption. Also this specific strategy is not really new but it is part of the new 5-year plan. Of course, there is an intention to achieve this by more domestic production of consumption goods – supported by the political promises of reasonable increases of disposible incomes.
Conclusion: This policy strategy is obviously linked to the plan of modifying the Chinese economic model by somewhat reducing the role of exports and investments as growth factors and instead increase the share of private consumption related to GDP – probably as much as possible supported by “Made in China” (but I could not find further updated detail on this latter issue).

¤  Focus on stability. Particularly Prime Minister Li Keqiang emphasized the need of stability in many areas – for ensuring future progress in the Chinese society and economy. Among the mentioned areas were employment, the financial sector, foreign trade, investments, supply chains – and obviously Hong Kong.
Conclusion: Different risks are and remain an issue for China’s political leaders.

¤  Important changes for Hong Kong. Beijing seems to plan far-reaching changes of the election system making it impossible for opponents to the People’s Republic to be promoted to any influential political position in Hong Kong.
Conclusion: Developments in Hong Kong remain an important topic for analysis. Probably, Hong Kong will increasingly be regarded as a part of Mainland China internationally. Hong Kong appears moving to “one country / one system” considerably faster than one could expect some years ago when having read the still valid Hong Kong Basic Law. https://www.basiclaw.gov.hk/en/basiclawtext/images/basiclaw_full_text_en.pdf

Summary – no surprise but tightened tone against Hong Kong

Altogether, the NPC did not offer special surprises this year. Not even the relative GDP-growth optimism can be interpreted as surprising. Really notable, however, appears the widened political threats from Beijing against opponents in Hong Kong.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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