China's economy returns to positive growth

China's economy posted positive growth in the second quarter reversing the retreat in the first, with the country gradually returning to normal after the COVID-19 outbreak.

The nation’s gross domestic product expanded 3.2 percent year on year in the second quarter to around 25.01 trillion yuan (US$3.57 trillion), compared with the 6.8 percent decline in the January-March period, according to the National Bureau of Statistics. 

The seasonally adjusted quarter-on-quarter economic growth, meanwhile, surged 11.5 percent in the April-June period, reversing the first quarter’s 9.8 percent drop.

For the first six months, GDP dipped 1.6 percent from a year earlier to 45.66 trillion yuan. 

Bureau spokeswoman Liu Aihua said COVID-19 had dealt a serious blow to the global economy which was now in its deepest recession since World War II. 

Liu said China had made plans to promote prevention and control of the virus as well as to stabilize and bolster economic and social development. Following a series of policies, the country's economy had been recovering steadily.

Lu Ting, chief China economist at Nomura, said: "China’s economy appears to have staged an impressive comeback since mid-March, driven by pent-up demand, a catch-up in production, a surge in medical product exports and stimulus in both China and other major economies that has supported a demand for goods made in China.”

Value-added industrial output in the first six months dipped 1.3 percent. The second quarter’s year-on-year increase of 4.4 percent to some extent offset the first quarter’s 8.4-percent slump.

Added value in the services sector, meanwhile, rose 1.9 percent in the second quarter year on year, compared with the 5.2 percent drop in the first quarter. Modern services industries showed strong growth momentum, Liu said.

Liu said stabilizing employment is one of the key tasks for the year. In the first six months, 5.64 million new urban jobs had been created nationwide, achieving 62.7 percent of the target for the year. 

In June, the unemployment rate in the national urban survey was 5.7 percent, 0.2 percentage points lower than in May. The 31 major cities surveyed posted an unemployment rate of 5.8 percent, down 0.1 percentage point from May. By the end of the second quarter, there were 177.52 million rural migrant workers.

Industrial production and fixed-asset investment continued to improve in June, growing by 4.8 percent and 5.3 percent year on year, respectively, from the 4.4 percent and 3.9 percent rise in May. Retail sales also narrowed the decline to dip by 1.8 percent in June compared with the drop of 2.8 percent the previous month.

Pent-up demand and catch-up production still played a key role in boosting industrial production for some major industrial products in June, although its strength seems to be fading, according to Nomura. Specifically, output growth of autos and smartphones in volume terms rose to 20.4 percent year on year and 26.1 percent, respectively, in June from 19 percent and 8.4 percent in May. 

Output growth of integrated circuits and industrial robots also jumped to 11.1 percent year on year and 29.2 percent, respectively, in June from 3.4 percent and 16.9 percent in May.

FAI growth ticked up further last month, rising 5.3 percent from the same period last year, led by manufacturing investment, compared with the 3.9 percent growth in May.

Meanwhile, infrastructure investment growth moderated to 8.4 percent year on year in June from 10.9 percent in May, perhaps because of the flooding around the Yangtze River. Property markets cooled in June, with new home sales by floor space dropping to 2.1 percent year on year in June from 9.7 percent in May.

"Looking from the rebound of various economic indicators in the first half of the year, especially in the second quarter, we are holding more confidence to see sustained economic recovery in the second half of 2020," Liu said.

She said China had seen a number of new industries, new forms of business and new models emerging during the pandemic, which are expected to continue to provide strong support for economic recovery.

The positive effects of macro-policies will be further revealed, according to Liu. "In the first half of the year, in response to the impact of the pandemic, China has carried out fiscal and tax support as well as financial support, and has comprehensively strengthened the job-first policy, of which we have seen good results." 

"Into the second half of 2020, the recovery in the US and EU could further boost China’s growth," Nomura said.

"But we also see many challenges,” Lu said.

For example, pent-up demand will lose steam; some social distancing measures may remain in place due to the protracted pandemic; the surge in exports of medical products and telecommuting-related devices will fade; Beijing appears reluctant to step up stimulus measures (some cities including Shenzhen even introduced a fresh round of tightening measures on property markets); the flooding around the Yangtze River could be the worst in two decades; and rising US-China tensions could hit China’s exports and related manufacturing investment. Last but certainly not the least, the risk of a second wave of COVID-19 cannot be ignored. 

"China’s economy, as well as the global economy, remains very vulnerable to a second wave of the pandemic, which could break out by winter,” Lu said.