China's Economy seems to be bouncing back from Coronavirus 

Summary

• China reported that its second-quarter GDP expanded by 3.2% in 2020 from a year earlier as lockdown measures ended, and stimulus was stepped up to overcome the shocks emerging from coronavirus crisis.
• While China's industrial output rose by 4.8% YoY, retail sales were down 1.8% in June from a year ago.
• Exports and imports rose by 0.5% and 2.7% from a year ago, as per June customs data with eased restrictions and worldwide reopening of countries.
• As the world economy is expected to step into recession in 2020, as a result of implementation of lockdowns and limited business activities, global demand has reduced, which might hurt Chinese exports.
• World Bank has projected Chinese economy to slow down to 1% in 2020, if the virus remains under control and global activity bounces back.

Coronavirus has choked the global economy with widespread demand slump and lockdown measures adopted across various nations. After an unparalleled drop in the first half of 2020, the global economic activity is picking up, but a second wave of coronavirus could generate more disturbances.

The fiscal and monetary policymakers are operating without a blueprint, given the unprecedented complexity of the crisis induced by the pandemic. While all major and emerging economies are still fighting the health and economic crisis, with many economies in recession due to the virus, China's economy climbed sharply in Q2 of 2020, dodging recession fears.

China's economy grew 3.2% in June quarter, beating analysts’ projections. After recording a steep contraction in March quarter, the country reopened by ending lockdown measures and propped up stimulus to overcome the economic fallout of coronavirus.

Source: National Bureau of Statistics of China

As per the National Bureau of Statistics, Chinese economy fell 1.6% in the first 6 months from a year earlier.

The GDP’s growth in second quarter was much higher than what experts were forecasting, pointing to a V-shaped recovery, which is a steep plunge followed by a speedy revival. This implies that China has avoided going into a technical recession, which means 2 consecutive quarters of negative growth. The rebound in GDP numbers came after a steep drop of 6.8% in the first 3 months of 2020, which was the first decline since at least 1992 when official quarterly GDP records started.

The 2^nd largest economy, globally has been improving gradually in the past 2 months, but the rebound from coronavirus induced economic slump has been bumpy. Factories and businesses were shut for longer duration as China imposed strict measures to stop the virus spread. The government has also been introducing a number of steps to further improve the economy, including tax cuts.

Rise in factory output but weak consumption

The improvement of about 10 percentage points in the GDP growth in June quarter was largely driven by a sharp rise in factory output. China's industrial production grew by 4.8% on year in June, after contracting for 3 months straight till March 2020, and expanding by 3.9% and 4.4% in April and May. The growth rate was about 0.4 percentage point higher than in May.

Source: National Bureau of Statistics of China

However, the latest data showed weak consumption in China. The total retail sales of social consumer goods in the country dropped by 1.8% YoY in Q2, a decrease rate of 1 percentage point from May. Total retail sales of consumer goods fell 11.4% YoY from January to June 2020.

China's trade economy grew in June

China's growth in Q2 was also led by a surprising strength of exports, which rose by 0.5% from a year ago in June, a sharp lift from May's slump of 3.3% indicating a pickup in global demand as many nations had begun to ease lockdown measures that drove the world economy into the biggest slump in last 90 years.

As per the customs data released on 13 July, China's imports increased 2.7% and exports by 0.5% from a year earlier beating market expectations for 10% and 1.5% decrease, respectively.

While the reopening of major western economies and boost in demand for masks, medical products and work from home equipment shipments supported the exports, iron-ore imports and crude oil imports hit an all-time high. China's imports from the US soared 11.3% in June, overturning the double-digit falling drift witnessed after COVID-19 outbreak.

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However, some countries are re-imposing lockdowns to fight the second wave of virus curbing global demand. Experts predict that sales from exports of masks, medical and work from home equipment have been weakening and would weigh on manufacturers in coming quarters.

According to a report of Institute of Advanced Research at Shanghai University, many external risks of deteriorating US-China trade relations, plunging global demand and supply chain disruptions are anticipated to pressurise the trade position of the country in the long run.

Fragile recovery ahead

Coronavirus, which originated in Wuhan district of China, has infected more than 13 million people worldwide and has taken lives of more than 500,000 people so far.

As per the World Bank report "Global Economic Prospects" released in June 2020, China is projected to slow to 1% in 2020 assuming that the coronavirus outbreak stays under control and activity recovers.

China's National Bureau of Statistics acknowledged the risks ahead, stating that the national economic recovery remained under pressure due to the emerging impact of COVID-19 on the world economy and the substantially growing external threats and challenges.

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The Bureau also stated that strict efforts must be made to stabilise employment, finance, foreign trade, and investment, as well as systematically execute tasks to protect livelihoods, food security, stability of industry and supply chains at the grassroot level.

In May, China declared a rare decision of not setting a GDP target (first time since 1990) for 2020 due to coronavirus uncertainty.

As the global economy is anticipated to fall into recession in 2020, there has been a plunge in global demand amid limited business activities and shutdowns, which is expected to affect Chinese exports.