China Research

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:

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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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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