Road to Recovery: How China has managed to set its economy back on course
Despite the ravages of COVID-19 in 2020, China managed to turn around its lockdown-hit markets to lead global economic recovery. The country now remains on track to become the largest economy in the world.
At the close of 2019, China was continuing its historic transition from being a superhigh-growth, emerging market to a mature, established economy. At the time, even with some deceleration, the Chinese economy was still expanding at a 6.1% annual clip, a figure that well outstripped that of most other nations. The country was internationalizing rapidly via the Belt and Road Initiative (BRI), and per capita disposable income was continuing to rise – all while showing resilience in the face of the trade war with the U.S.
Then, at the end of the year, a novel coronavirus emerged in Wuhan that proverbially knocked all the pieces off of the table. In early 2020, China’s urban centers became bona fide ghost towns as factories, stores and schools across the country were shut down. The national economy virtually ground to a halt to combat the spread of COVID-19. GDP plunged a record 6.8%, industrial output plummeted, and the future seemed more uncertain than it had been for decades.
A rapid reopening and recovery
Nevertheless, China did not wallow in the depths of economic despair for long. In fact, in a matter of mere months after the initial outbreak in Wuhan, China was taking fast strides towards recovery.
Once the new corona variant was identified and acknowledged, “the government took the pandemic very seriously … and had a strict, coordinated, nationwide approach,” explains Mark Tanner, founder of Shanghai-based consumer research firm China Skinny. “When there was an outbreak, even if it involved a dozen people, cities of millions were tested within days.”
During the height of China’s initial wave of COVID-19 in 2020, work in most factories across the country ground to a halt. In January and February, motor vehicle manufacturing fell nearly 32% year over year, while machinery, textiles and foods fell 28%, 27%, and 18% respectively, according to China’s National Bureau of Statistics.
Haishan Wu, a researcher at WeBank who uses anonymized geolocation data from smart devices and satellite imagery to track human mobility and economic vitality, says that China was experiencing just 24% of its usual activity two weeks after Chinese New Year in 2020. But by March, this number was already up to 75% – and in some prime cities in the coastal provinces of Zhejiang, Jiangsu and Guangdong, it topped 90%.
Data collected by Bloomberg and the Johns Hopkins Bloomberg School of Public Health indicate that China had the lowest rate of COVID-19 cases and deaths of the major economies, and the second lowest unemployment rate, in the second half of 2020. The impact of successfully controlling the COVID-19 situation has had a direct impact on China’s economy, which grew more than expected last year even as the rest of the world was upended by the coronavirus pandemic.
Figures released by the National Bureau of Statistics of China (NBS) for 2020 anticipate a 2.3% increase in GDP growth compared with last year. As Bloomberg News comments, this represents China’s slowest annual growth rate in decades – not since 1976 has the Chinese economy performed worse, when its GDP shrunk by 1.6% amid social and economic unrest.
Nevertheless, according to the NBS, it would appear that the Chinese economy’s rate of growth is accelerating. After a decrease of 6.8% in the year-on-year GDP in the first quarter of 2020, the values for the subsequent quarters of last year rose to 3.2% in the second, 4.9% for the third and finished off with 6.5% in the fourth.
The International Monetary Fund’s (IMF) estimates project that China’s GDP will have been the only economy to have experienced any growth in 2020. And within an anticipated 5.5% expansion in the world economy in 2021, the IMF foresees an increase in China of 8.1%, comfortably outstripping GDP growth in the advanced economies.
“China has been very successful in containing the pandemic and that has played a very important role in bringing back activity much more quickly,” says Gita Gopinath, IMF Economic Counselor and Director, Research Department. “There’s been effective policy support provided both in terms of fiscal policy and monetary policy, and China’s exports have also gone up in this environment. And indeed, it is one of those economies that’s returning to the prepandemic projected level in the fourth quarter of 2020, well ahead of other major economies.”
China’s advantageous trade surplus doubtless assisted in the remarkable economic growth during the pandemic year. According to data released by the General Administration of Customs (GAC), China’s foreign trade rose 1.5% to $4.65 trillion in 2020. In the same period, its exports amounted to $2.59 trillion, while imports slid by 1.1% to $2.06 trillion. This led to a trade surplus in 2020 of $535 billion – 27% more than the previous year, and its highest ratio since 2015, China Global Television Network (CGTN) reports.
Quick bounce back
This rapid recovery may have a significant geo-economic impact for China. While the U.S. economy is expected to have contracted by 3.5% year-on-year in 2020, the Centre for Economics and Business Research is now predicting that China will move past the U.S. to become the world’s largest economy by 2028 – five years sooner than their previous estimate – and more than triple in size by 2035. Experts expect that this progress will not be deterred by recent new outbreaks of COVID-19 in some provinces. The BBC reports that, according to Yue Su, principal economist for the Economist Intelligence Unit: “This momentum will continue, although the current COVID-19 outbreak in a couple of provinces in northern China might temporarily cause fluctuation.”
The value of China’s trade surplus in 2020
The year when China is predicted to become the world’s largest economy
Manufacturing, healthcare and hi-tech are among the sectors that have put China on the path to recovery. And while retail sales declined overall by 3.9%, e-commerce continued to boom. China leads the recovery in the worldwide auto industry. In January, motor vehicle sales increased by 30% year-on-year – the 10th month of gains, according to data from the China Association of Automobile Manufacturers.
In many ways, COVID-19 has expedited technological developments and social shifts that were already in progress. Going out to the stores to shop was already becoming a thing of the past. But with hundreds of millions of people trying to stay home as much as possible, e-commerce boomed and consumer habits were further pushed towards online consumption.
“With continued globalization and the COVID-19 pandemic driving consumers to shop online like never before – especially during mega shopping days such as ‘Double 11 Shopping Festival’ – sales numbers hit a new high,” says Dong Ming Wu, CEO, DHL Express China. “The sales boom demonstrates China’s sustainable consumption power. Shopping online is not a new thing in China, but COVID-19 has changed the way people live, work and shop.”
Wu believes that China is affording us a glimpse of a global future of consumption, in which multichannel shopping that allows customers to do research online and buy or try things out in an online store will be on the rise. Livestream retail – conducted through live, high-energy video to promote products, answer questions and close sales – is also gaining in popularity.
Full steam ahead
In launching its Belt and Road Initiative in 2013, China sought to bolster its participation in the next phase of globalization with an enhanced network of land- and sea-based trade corridors and manufacturing zones around the world. With 140 countries signed on and projects in the works in all corners of the globe, the BRI was running at full steam before the COVID-19 pandemic hit.
As the world began shutting down, so too did development on the BRI. Major projects in Pakistan, Cambodia and Myanmar, to name just a few, were halted in their tracks. Nevertheless, these disruptions proved to be temporary and, across the BRI, work has begun again.
One of the biggest bright spots for the project is its signature trans-Eurasian rail network, which now connects dozens of cities in China with Europe and the Middle East.
“Passenger flights being grounded took away a lot of capacity on air freight,” says Steve Huang, CEO, DHL Global Forwarding Greater China. “Some of the cargo just cannot afford the transit time of ocean freight. Then ocean freight also cut down capacity, increased transit times and had more blank sailings, so a lot of volume went to rail.”
By the end of 2020, the BRI’s rail network was booming, Huang points out, with 12,400 trains having traversed the expanse between East and West. “They anticipate this will grow further. And now they are looking for connections,” Huang says.
Another way that the BRI had a major impact on transport and the economy throughout the COVID-19 pandemic was through the inception of what Chinese President Xi Jinping called the “Health Silk Road.” This is essentially the utilization of the network to manufacture and transport medical supplies more readily and effectively around the world, making China a global healthcare leader in the process.
“Globalization for China is a fixed path,” Huang says. “They will keep pushing on it. They have to diversify the market more because of the tariffs from the U.S. government. I think they will further enhance their Belt and Road Initiative.”
China will continue its international progress in 2021 with more BRI partnerships and pilot free trade zones and ports. The rail and road connection to Southeast Asia, one of the major missing links of the BRI and a key part of China’s 14th five-year plan, is set to kick off next year. This new corridor will extend down from Kunming in the Yunnan province through Laos, Myanmar and Thailand.
“To expand opening up, China is taking actions to further facilitate foreign trade,” Wu explains. “For example, it is making constant efforts to support new international patterns in free trade ports and pilot free trade zones.”
Although the global economy is still struggling to overcome setbacks due to the pandemic, China appears to be in pole position for recovery. “The coming year is looking more positive for China than any other major market,” Tanner says. “Not only has the virus been largely contained, but consumers are also feeling positive about it as a result.” — Wade Shepard, Christine Madden
Published: March 2021
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