China Research

China noted a relatively sharp GDP decline by 6.8 percent in the first quarter of 2020 (year on year) and by 9.8 percent compared to the previous quarter. This is line with average expectations which, however, had a very broad range of numerical forecasts. If traditional overestimation is assumed in those numbers, reality could even have been somewhat worse. However, the next quarter – when people to a high extent have come to work – will give some more clarification. Anyway, the official growth objective for 2020 at around 6 percent cannot be met anymore. It should be added that there is no way to make a reasonable GDP forecast for 2020 at this very moment.

Compared to my previous scenarios it may be said that the third V-curve scenario (see below) may be in line with the official numbers for Q1. China may still go for a V curve – but for a somewhat milder one compared to the toughest alternative that included both a very sharp downturn and a very strong recovery later this year.

GDP statistics for q1 may still open for politically acceptable growth numbers when coming close to the important 100-year anniversary of the Communist Party next year (if a second corona wave can be avoided).

Some background considerations

For the first time since quite some time ago, a quarterly change of Chinese GDP was not predictable for q1. The effects of the corona virus on demand and production did not allow for any plausible “guesstimate”. As indicated earlier in this blog, I assumed that the q1 number for China’s GDP would be partly politically set – with two or perhaps three options (see my blog chinaresearch.se from March 25 and April 14).

My theory that GDP growth to a considerable extent would be politically determined receives probably momentum also during 2020, the year before the 100-year anniversary of the Communist Party. Chinese political leaders would certainly dislike a weak economic development also later in 2020 and in 2021 – despite the corona excuse. This argument certainly urges for a relatively nice economic recovery starting at least in the latter part of 2020 or in the beginning of next year. Will it work?

In this context, my first option in previous publications was a relative sharp downturn in q1 and perhaps also in q2 – but then followed by a relative strong recovery, something like a short-lived and steep V curve. My second option was still a V curve – but less deep and steep and also somewhat more extended than in the first option. A third option could turn out be a forthcoming GDP curve between these first two V curves – but not really recognizable as an alternative on its own. This version may have been indicated today by the official 6.6-percent drop in q1.

One conclusion, however, can be made already today: The analysis of China’s GDP development in q1 should not be exaggerated. Circumstances were simply too special.

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