China is set to join the US as twin engines for a global recovery in 2021 as its economy strengthened in the first quarter of the year thanks to a more than expected rise in consumer spending.
China’s gross domestic product (GDP) climbed 18.3 percent in the first quarter from a year earlier, largely in line with the 18.5 percent predicted by economists, though that record-breaking figure was largely due to comparisons with a year ago when much of the economy was shut due to coronavirus. Retail sales beat expectations while industrial output growth moderated.
The latest data puts China on course to grow well above its annual target of more than 6 percent, supporting the view that China and the US, where economists predict 6.2 percent growth, will both outperform other major nations this year. China’s recovery hasn’t yet levelled after it became the first major economy to contain the spread of coronavirus and return to growth, with GDP rising 0.6 percent in the first three months of 2020 from the previous quarter.
The recovery last year was led by strong investment in real estate and infrastructure spurring demand for industrial goods, while overseas orders for medical goods and electronic devices fueled exports. Consumer spending had lagged, but the latest figures showed a comeback. Retail sales growth was 6.3 percent in March when calculated on a two-year average growth basis, which is up sharply from the rates seen last year.
“We are seeing a bit more balanced recovery in the Chinese economy,” experts said. “That early pickup in the construction industry is going to give way to more household consumption,” they added. Consumer spending at restaurants and sales of discretionary goods such as jewelry, alcohol and tobacco led the growth of retail sales in March.
What economists have to say
Although China has promised “no sharp turns” in monetary and fiscal support this year, some prominent economists have warned that premature tightening could still put the recovery at risk. The central bank has asked banks to curtail loan growth in coming months as it seeks to control credit to curb asset bubbles. Alongside the investment data, data showing home prices grew at the fastest pace in seven months in March will likely prompt more action by Chinese policy makers to rein in the sector.
“Considering the robust recovery, we certainly do not expect Beijing to step up easing measures, but it is also unlikely to make a sharp shift in its policy stance,” economists note. Authorities have learned lessons from a “forceful deleveraging campaign” in 2017-18, which led to bond defaults, a stock market selloff and weaker growth, they said.
Economists forecast global GDP growth of 6.9 percent in 2021, rapid enough to bring output substantially back onto its pre-COVID-19 path. Data released recently showed the US economy’s comeback is a good sign, with retail sales exceeding pre-pandemic levels in all categories except restaurants. Production at US factories increased in March by the most in eight months.
China has rapidly accelerated its vaccination campaign over the past month in a move that should help improve spending on services. A recovery in major economies fueled by vaccine roll-outs and the American president Joe Biden administration’s massive fiscal stimulus is expected to sustain rapid growth in Chinese exports this year.