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China’s economic recovery still resilient on export growth

China's economic recovery still resilient on export growth
Shanghai, China

China – the world’s second-largest economy – has rebounded slightly from the Covid-19 crisis, with its economy registering better recovery than expected for the second quarter of 2021. China’s Gross domestic product (GDP) expanded 7.9% in the April-June quarter from a year earlier, official data showed on Thursday. Continuing a streak of robust growth, China’s economic recovery was buoyed by solid export demand and policy support.

In the first half of the year, China’s GDP grew by 12.7% YoY, which was impressive in comparison with major Western economies. On a quarterly basis, the economy expanded 1.3% in Q2. This is, however, significantly lower from a record 18.3% expansion in the January-March period.

In total, the country’s GDP rose to $8.23 tn in the first six months of 2021.

Even though China’s GDP momentum was fairly strong, it was slightly below expectations for a rise of 8.1% in a Reuters’ poll of economists and 8% by Bloomberg estimates.

Is China on the path to economic recovery?

Beijing has set an economic growth target of above 6% for 2021. China was the only major economy to have avoided a contraction in 2020, expanding 2.3% overall. As per the National Bureau of Statistics of China (NBS), the average second-quarter growth in 2020 and 2021 was 5.5%, as against a 5% average for the first quarter.

As per NBS officials, the national economy has, in general, sustained a steady recovery in the first half of 2021. However, some sectors showed softness in comparison to Q1, including retail sales, industrial output, and fixed investments.

Industrial production expanded by 8.9%, down from the 24.5%,  growth in sales of consumer goods was at 13.9%, down from 33.9%. NBS data also showed a cooling in China’s housing market.

China’s exports growth still buoyant

China’s exports, a key engine of the country’s growth and economic recovery from the coronavirus outbreak, also recorded stronger-than-expected growth in June – backed by solid global demand from easing lockdown measures and vaccination drives.

China’s exports increased 32.2% from a year earlier to $281.4 billion, up from May’s 28% growth, data from the General Administration of Customs showed Tuesday.

China’s January to June exports jumped 28.1% YoY. China’s monthly trade surplus averaged $42.5 bn in H1 21, and $27.4 bn in H1 20, and $29.4 bn in H1 19.

Meanwhile, China’s imports grew by 36.7% in June 2021, YoY, down from 51.1% growth in the previous month.

But despite this, NBS suggested that overall YoY trade growth may slow in the second half of 2021, due to the external instabilities and uncertain factors that continue to evolve during the Covid-19 epidemic.

In recent months, exports had shown softness amid rising raw material costs, weakened overseas demand for Chinese-made goods, and supply chain constraints causing global shipping delays.

China’s export outlook

The newly released export data has cleared economists’ concerns over the country’s exports growth. However, uncertainties remain, such as rising material costs or new lockdowns to contain the Covid-19 pandemic.

In early June, for example, China closed the port of Yantian in Guangdong due to a coronavirus outbreak. It is considered the fourth largest container port in the world. According to Louis Kuijs, head of Asia economics at Oxford Economics, exporters appeared to be shrugging off the impact of the temporary port disruption, with sequential terms shipments rising strongly in June. Even if short-term disruptions occur, China’s role in global supply chains remains intact and strong demand for electronics is likely to continue, the economist said.

“More generally, we think global demand will continue to support China’s export outlook, especially as we expect global supply chain disruptions to be resolved gradually in the coming months. In real, sequential terms, export momentum improved. We expect export volumes to return to sequential growth in H2 following the recent softness”, he added later.

According to Julian Evans-Pritchard, senior China economist at Capital Economics, headwinds to growth are likely to intensify during the second half of the year. He adds,” China’s Covid-19 export boom appears to have peaked and will unwind over the coming quarters as vaccine rollouts and reopening help to normalize global consumption patterns. Easing supply shortages and still strong demand have helped to shore up trade volumes.”