While much of the world grapples with the resurgence of the coronavirus and accompanying economic woes, China recorded a positive growth rate for 2020, making it likely the only major economy to do so.
But with many of its export markets now facing new restrictions as their COVID-19 cases rise, some analysts have predicted that China may not be able to sustain the rapid rebound it has recorded. at the end of last year.
For the whole of 2020, gross domestic product (GDP) rose 2.3% from 2019, figures released by China’s National Bureau of Statistics (NBS) showed on Monday, faster than the rate growth of 1.9% predicted by the International Monetary Fund in its October 2020 forecast.
After the virus emerged in China’s central city of Wuhan in late 2019, it spread rapidly, forcing authorities to lock down much of the country and its economy.
GDP fell by 6.8% in the first quarter of last year compared to the same period in 2019 but, as confinement measures were lifted, it rebounded by 3.2% in the second quarter. It accelerated to 4.9% and then to 6.5% in the third and fourth quarters of 2020 respectively.
The fourth-quarter growth rate beat the median forecast of 6.1% in a poll of economists by Reuters news agency.
“The strengthening momentum of China’s economic rebound over the [the fourth quarter of] 2020 reflected improving private consumer spending, as well as buoyant net exports,” Rajiv Biswas, chief Asia-Pacific economist at research firm IHS Markit, told Al Jazeera in an email.
The combination of improving private consumption and growing foreign demand pushed up China’s growth rate in the fourth quarter, analysts said.
“China’s exports of medical equipment and electronics have grown very strongly in recent months, boosted by continued demand related to the coronavirus pandemic. [personal protective] hardware and computers and mobile devices to work from home,” Biswas said.
Despite a trade war with the United States and broken supply chains caused by coronavirus shutdowns, Chinese exports grew 4% in 2020, NBS figures show.
Some analysts have questioned the veracity of Chinese economic data, but research firm Capital Economics said the latest growth figures appear to accurately reflect a strong economic rebound in the fourth quarter.
“Our in-house measure, the China Activity Proxy (CAP), also points to a strong pick-up in growth in the last quarter despite a more pronounced slowdown at the start of the year,” said Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note sent to Al Jazeera.
While strong consumer demand was one of the mainstays of China’s rebound early last year, there are signs going forward that it may be faltering somewhat.
Retail sales rose a relatively modest 4.6% in December compared to the same month in 2019. That was slower than the 5% growth rate in November and lower than analysts’ forecasts.
“Retail sales growth momentum slowed from November, showing that household demand continued to be under pressure and lagged in the recovery. For the full year, retail sales contracted by 3.9% [year-on-year]Jingyang Chen, Greater China economist at banking giant HSBC, said in a note sent to Al Jazeera.
“Retail and customer-facing service sectors will feel more pressure as strict virus containment measures have been reimplemented in some northern provinces, and stricter government guidelines to reduce travel and public gatherings have also been published in major cities and provinces in China. “Chen wrote.
New cases of coronavirus in China hit a 10-month high last week, causing 28 million people to be locked down in two provinces, disrupting logistics and industrial activity, with millions having to scrap travel plans from holidays.
Slowing consumer demand could pose a dilemma for Chinese policymakers, who are trying to reduce China’s reliance on exports while encouraging domestic spending and investment to boost growth.
Longer term, some analysts are optimistic that vaccines rolled out in developed countries will help restore consumer demand there, potentially giving Chinese factories an export-focused boost.
Economists Kevin Lai and Eileen Lin of Daiwa Capital Markets in Hong Kong say they see China’s economy growing 7.5% in 2021, likely far outpacing its global peers.
But this robust export-led growth rate may hide some underlying problems domestically.
“We expect this growth to remain unbalanced, with gains coming from exports and industries, but not trickling down to jobs and household incomes,” Daiwa economists said in a note sent to Al Jazeera.
While most jobs lost at the height of the pandemic have returned to pre-outbreak levels, with an unemployment rate of 5.2%, according to HSBC, wages have not.
“Income growth has yet to fully reach pre-pandemic growth levels, as we estimate that nominal disposable income per capita only reached 7.1% growth in [the fourth quarter of] 2020 versus 8.9% for 2019,” said HSBC’s Chen.
An even deeper source of concern for investors could be the rising unsustainable debt levels of large state-owned enterprises (SOEs) and the unwillingness or inability of provincial authorities to bail them out.
According to research firm Enodo Economics, nine state-owned enterprises defaulted on Chinese yuan-denominated bonds they issued last year. Among them was Huachen Automotive Group Holdings Co, the parent company of Brilliance Auto Group Holdings Co, the joint venture partner of German auto giant BMW in China.
The total value of these nine defaults jumped to around 49 billion Chinese yuan ($7.5 billion) from 12 billion yuan ($1.8 billion) in 2019, Enodo said in a note sent to AlJazeera.
“Local government finances nationally are overstretched and show little sign of improvement,” said Enodo’s Dinny McMahon.
“The defaults have sparked much debate over whether this marks the end of local governments’ implicit guarantee on their public companies’ obligations. Beijing has gradually moved in this direction lately and has become increasingly tolerant of defaults. But at least for now, even though defaults by public companies will likely increase, local authorities will continue to seek to bail out their companies whenever necessary,” McMahon added.