Coronavirus: China's V-shaped economic recovery just started, say experts

Indicators show it will be the first major economy to pull out of crisis

A worker making inductors for export in China's Jiangsu province last month. Industrial production growth is forecast to have picked up and retail sales may have stopped shrinking last month, in numbers due this Friday. PHOTO: AGENCE FRANCE-PRESSE
A worker making inductors for export in China's Jiangsu province last month. Industrial production growth is forecast to have picked up and retail sales may have stopped shrinking last month, in numbers due this Friday. PHOTO: AGENCE FRANCE-PRESSE

BEIJING • China's economy has ridden out its downturn due to Covid-19 strains and bounced back to growth in the second quarter, as shown by multiple mid-year indicators.

Economists believe that the country's V-shaped recovery is only getting started.

In the second quarter, China's gross domestic product expanded by 3.2 per cent year on year, reversing a 6.8 per cent contraction in the previous quarter.

China's fiscal revenue marked the first expansion this year by gaining 3.2 per cent year on year in June.

Such indicators and upcoming ones show that the country first affected by the coronavirus crisis will be the first major economy to pull out of it.

Industrial production growth is forecast to have picked up and retail sales may have stopped shrinking last month, in numbers due this Friday. Investment for the first seven months of the year is expected to contract compared with a year earlier, but at a slower pace than in the previous month.

"China's economy has gradually emerged from the slump and returned to the level it was roughly at prior to the outbreak, backed by the stimulation that has delivered burgeoning signs of work resumption, industrial chains and services sector," said Orient Securities' chief economist Shao Yu.

The Purchasing Managers' Index for China's manufacturing sector rose from 50.9 in June to 51.1 last month, remaining in expansion territory for the fifth month in a row - an indication of stronger confidence of market entities.

Said Mr Steven Zhang, chief economist at Morgan Stanley Huaxin Securities: "China has its institutional advantages that enable a more agile and rapid response to public safety emergencies like Covid-19."

The prompt implementation of measures - including higher fiscal spending, tax relief, and cuts in lending rates and banks' reserve requirements - to revive the economy and support employment is one major reason behind the second quarter's growth, Mr Zhang added.

As recent data showed that China's imports from emerging countries rose significantly, the recovery of the world's second-largest economy is expected to boost the pace of other economies' restoration, according to Mr Zhang.

The prompt implementation of measures - including higher fiscal spending, tax relief, and cuts in lending rates and banks' reserve requirements - to revive the economy and support employment is one major reason behind the second quarter's growth, Morgan Stanley Huaxin Securities chief economist Steven Zhang added.

 
 

In the first half of the year, China's trade with Asean rose 5.6 per cent year on year to 2.09 trillion yuan (S$412 billion), while that with countries in the Belt and Road Initiative accounted for 29.5 per cent of total trade, up 0.7 percentage point year on year.

"China's economy has mostly ridden out the Covid-19 blow and is entering a V-shaped rebound trajectory," said Mr Zhang, forecasting the recovery to further consolidate in the third and fourth quarters with a 2.5 per cent to 3 per cent year-end growth.

XINHUA, BLOOMBERG

 
A version of this article appeared in the print edition of The Straits Times on August 10, 2020, with the headline 'China's V-shaped economic recovery just started: Experts'. Print Edition | Subscribe