A worker from Thinova Magnet Co. Ltd. puts rare-earth magnets in a press at a factory in Zhejiang province.
Emily Feng/NPR
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Emily Feng/NPR
A worker from Thinova Magnet Co. Ltd. puts rare-earth magnets in a press at a factory in Zhejiang province.
Emily Feng/NPR
China posted economic growth of 4.9% in the third quarter compared to the same period last year, keeping it on track to be the only major world economy to record economic expansion this year amid of the novel coronavirus pandemic.
Economists estimate that China’s annual GDP growth could be north of 2.5% this year, even as the rest of the global economy is expected to contract by at least 4%. This differential will give Chinese companies in sectors ranging from electronics to steel a greater share of the global market and greater economic influence.
“What you’re seeing now is basically China’s stability premium coming back, in the sense that companies are dealing with a global pandemic right now, and a lot of places they would move production to don’t look so rosy in right now,” said Michael Hirson, head of the China and Northeast Asia practice at consultancy Eurasia Group.
Just six months ago, China appeared to be in dire economic straits as the pandemic, which began in its port city of Wuhan, caused a nationwide lockdown of staggering proportions. In May, Beijing dropped its annual economic growth targets for the first time after its economy shrank 6.8%, the worst contraction in three decades.
“It was like a war. Our director told us, ‘In these critical times, if you can’t stand your end, I’ll just find someone else to replace you,'” said Xue Yue, vice-president. president of Thinova Magnet Co. Ltd., which manufactures rare-earth magnets and sensors for automobiles and electronics such as smartphones.
The pressure to continue supplying Thinova’s multinational customers was enormous. Xue was able to resume production at Thinova in February by negotiating with dozens of villages to allow some 200 workers out of strict lockdown so they could return to work.
But since then, China has staged a dramatic economic recovery thanks to extensive and mandatory testing and quarantine policies. New daily coronavirus cases have fallen to single digits. Subsequent outbreaks were contained by strict, city-by-city shutdowns that allowed the national economy to continue functioning even as some areas were temporarily locked down.
Thus, the factories, including that of Thinova, are working again. Auto sales rose at their fastest pace in two years. Real estate investment has been climbing at double-digit rates for months, spilling over into related sectors such as steel and construction.
While China’s economic statistics have been dogged by longstanding suspicions about their veracity, economists say the growth numbers – while not completely accurate – are reliable as a general indicator of the economy. ‘activity.
“Consumer demand is down, but due to uncertainty about the possibility of a second wave [of the virus], our customers in North America have stocked up on our components,” says Xue.
A global advantage
By getting back to work earlier than other countries, China will gain even greater market share in key export industries of manufacturing and raw materials.
“Global steel production has fallen, so China’s share of production can only increase. I estimate that this year, China will account for 60% of the world’s steel production,” said Li Xinchuang, president of the China Metallurgical Industry Research and Planning Institute, a consultancy firm. State and industry body.
“In June and July, we were importing steel, there was no [global] steel market,” Li said. “Only China wanted to buy, as our auto and construction sector recovered quickly.
Because China’s economy recovered earlier and faster than that of other nations, including the United States, its trade surplus this year will only widen.
This could heighten tensions with the United States, which has long accused China of artificially increasing its trade surplus at the expense of American manufacturers. The Trump administration made reducing the disparity in goods traded between the two countries a key demand in a trade war last year.
“The fact that China is up and running again, and in fact some evidence to suggest that China is grabbing market share in export industries, will be a source of concern for U.S. policymakers. in particular,” Hirson said.
Last year, the trade war and a difficult operating environment led some American companies to consider moving part of their supply chain out of China. Popular alternatives include Southeast Asia, where labor costs have remained lower than mainland China.
But this year, the latest survey from the American Chamber of Commerce in Shanghai found that more than 78% of respondents will not move their operations, an increase of more than 5% from last year.
Continued weakness in consumer spending
The Chinese economic recovery has its weaknesses.
Much of the recovery in economic activity is coming from investments in new manufacturing facilities and infrastructure.
This has overtaken consumption, which means China is still making more things than people want or can buy. Retail sales lagged behind a year ago, but picked up for the first time in August.
“The next key economic data to watch is inventory growth,” or the amount of goods manufacturers have stockpiled, says Bo Zhuang, chief China economist at research firm TS Lombard.
Exports of homewares and electronics surged, driven by a captive market of overseas consumers eager to take on home improvement projects during lockdown or ready to splurge on homewares. work from home such as computers or massage chairs.
But Bo says such export growth is limited because many goods are one-time purchases.
“We should be worried about China’s export growth because for most households in Europe or the United States, once you have a laptop, you’re not going to buy another one in the coming months,” Bo said.
The lowest incomes on the Chinese socio-economic scale are struggling to rebound to pre-coronavirus levels.
A Peking University study from July estimated that 9% of the adult workforce in China remains unemployed after being laid off during the height of the pandemic. Many of the newly unemployed are itinerant migrant workers who have struggled to find new temporary work assignments and are ineligible for China’s resource-limited unemployment insurance programs.
“Overall, it’s still an investment-driven story, and what’s lagging is mainly consumption, especially for consumption related to low-income people,” says He Wei, an economist. Chinese at the Beijing research firm Gavekal Dragonomics.
Unlike many countries, including the United States, China has not provided cash payments to low-income workers, many of whom have been unable to find work after the pandemic, which has more desynchronized supply and demand.
“Inequality will increase further, which will weigh on consumption growth,” says He de Gavekal.
