Daily Management Review

China's economy hits record high


China's GDP showed a record 18.3% year-on-year growth in the first quarter, but the quarterly trend was worse than expected - the indicator improved by only 0.6%.

Mstyslav Chernov
Mstyslav Chernov
China's economy grew by a record 18.3% year-on-year in the first quarter of this year, according to data from the country's National Bureau of Statistics. However, this effect was primarily due to a low base - in January-March 2020, China's GDP contracted by 6.8%. Already in the second quarter, growth was positive (3.2%), in the fourth quarter it accelerated to 6.5%; for the year as a whole, the Chinese economy grew by 2.3%, while most major economies recorded a decline.

In quarterly terms, growth slowed to 0.6% compared to 3.2% in September-December 2020. Analysts expected a higher growth of 1.5%. In March, industrial production grew by 14.1% after a sharp increase of 35.1% in January-February, while retail sales, on the contrary, maintained a recovery growth - in March they grew by 34.2% (in January-February - by 33.8%).

Capex also increased significantly, up 25.6% in the first quarter (for 2020 as a whole, plus 3.5% on 2019 levels), with investment in railway infrastructure (plus 66.6%) and high technology (40.4%) growing the most, both sectors being widely supported by government stimulus measures. Foreign direct investment (FDI) in the mainland Chinese economy also increased, to $44.86 billion in the first quarter, up 43.8% year-on-year. Exports were up 20.7% year-on-year in March and imports were up 27.7%.

The official target for GDP growth in China this year is "above 6%" but according to the forecast of the International Monetary Fund, the economy of the country may grow by 8.4% (only India will achieve higher growth of 12.5%). However, it will no longer be at the same rate as in the first quarter - despite record growth, in quarterly terms China's GDP growth has slowed down and, in general, as the economy returns to "pre-pandemic" rates, the dynamics will slow down. 

This will be facilitated by reductions in fiscal support, as well as the volume of exports of medical goods, say Capital Economics. ING Bank also points out that the growth rate in subsequent quarters will be more modest, supported by consumption and continued capex in digital infrastructure - although an important limitation for the market may be a strong deficit in the semiconductor market - last year, global demand for them increased by 18% and China is the largest chip importer.

source: capitaleconomics.com