China’s economic recovery is notable, some analysts say, after suffering serious pandemic-driven setbacks for the majority of last year. By most accounts, China’s economic numbers at the start of its lunar new year in early February was more significant than those put out by governments in other developed countries.
According to some analysts, however, it is the Chinese Communist Party’s ability to strictly enforce disease control measures that helped Beijing to put the economy back on the rails as compared to most democratic countries where governments do not possess such powers. Chinese authorities could easily cut off highly affected areas from rest of the country and getting factories running in a calibrated fashion.
“China’s policy to control the pandemic was very strict. Also, the capillarity of the Communist Party made the implementation of these strict measures easier than in other parts of the world,” Lourdes Casanova, director of Cornell’s Emerging Markets Institute, told VOA.
The situation has been different in many democratic countries that found it difficult to use harsh measures to control the spread of the disease and impose lockdown as a tool to enforce social distancing.
China’s gross domestic product expanded by 6.5% in the fourth quarter of 2020. The economy grew 2.3% in 2020, according to Chinese government data. The turnaround has surprised economists because China’s industrial productivity saw a serious decline due to the lockdown imposed in the first and second quarter of last year.
China, the world’s second biggest economy, has taken several various stimulus measures like the issuance of special treasury bonds, lower lending rates, and tax exemptions.
“China has normalized faster than expected, aided by an effective pandemic-control strategy, strong policy measures, and buoyant exports,” the World Bank said in a December 2020 press release.
“The latest forecast is for China to grow about 8% this year," Casanova said. "If the average growth of 2020 and 2021 comes to 5%, which is possible, it is like adding the size of the Australian economy in these two years.”
Many businesses in China find they are getting as many customers as they did before the onset of the pandemic in 2019. The McDonald’s fast-food chain, for instance, did more business in December 2020 than it did in 2019.
“China seems to have gone relatively light on economic stimulus, relying instead on an all out effort to stop the viral spread and get people back to work, factories humming,” Doug Barry, an analyst for U.S.-China Business Council said.
“Factory output and consumer spending are on the rebound," he added. "Exports may be slower to recover because of lower demand in foreign markets, but China is not as export-dependent as it used to be.”
Casanova, however, points out that China took measures during the pandemic that were different from other countries. Instead of distributing checks, for example, it issued shopping vouchers that needed to be redeemed.
“While in the U.S. and Europe, the checks were used to pay debts or some of them were saved for later, Chinese citizens needed to use the vouchers, and this reactivated the retail sector immediately,” she said.
A different view of the Chinese economy is now surfacing with some analysts expressing skepticism about its ability to continuously grow, owing to internal problems like accumulated domestic debt caused by heavy borrowings by both private and public companies.
Rating agency Credit Suisse recently downgraded China from Overweight to Market Weight saying that “the most exciting period of its recovery is over.”
“China has limited potential for future GDP gains, negative EPS momentum relative to the region, late-cycle valuations and the region’s biggest potential payback from pandemic related current account windfalls,” said a portion of the Credit Suisse report quoted by The Times of India.
“Lurking in the distance are an ageing population and a potential bad debt bomb whose scope is hard to estimate because of opaque reporting requirements,” said Barry of the U.S.-China Business Council. Other headwinds include the continuing trade war with the U.S., potential conflicts with other countries, and overall weak demand for China’s products.
Casanova of Cornell University, however, does not fully agree with the Credit Sussie assessment. “Some interpret low numbers in the Chinese economy without taking into account that China is behaving more and more like a developed country," she said. "... [It is] not yet at the same level in GDP per capita as the U.S. and Europe because of the size of the population, but other indicators are already similar.”
Barry says there are no signs U.S. investors want to leave China, although some of them considered this option during the U.S.-China trade war under the previous White House administration.
“U.S. companies are staying the course in China, expecting business to continue its rebound,” he said.