Coronanomics – China’s Recovery has been good for the Chinese and the global economy.

China’s handling of the pandemic has been a topic of much discussion. One thing is clear, though: it has generally been good for the Chinese and, to some degree, also for the global economy. China is the only major economy that was able to achieve economic growth in 2020.

Chinese real GDP was 2.3 percent higher in 2020 than in 2019. That is is less than the previous year’s growth (the economy grew six percent in 2019 vs. 2018) – but at least a decline in Chinese economic output was prevented.

In this blog post, we take a closer look at some important economic indicators to assess China’s overall development since the outbreak of the COVID19 crisis.

OECD data on China’s gross domestic product

The OECD reports changes in real GDP not only as annual figures but also as quarterly data. For China, the corresponding values have only been available since the beginning of 2011, so that no comparison with the economic development during the financial and economic crisis of 2008/09 is possible.

In the two years before the pandemic, real GDP in China grew by 1.2 to two percent in each quarter. In the first quarter of 2020 (January 2020 to March 2020), however, economic output expressed by GDP fell by ten percent.

In the second quarter, it grew surprisingly strongly by more than eleven percent. Chinese GDP also continued to grow in the third and fourth quarters of 2020 and in the first quarter of 2021.

However, growth in the latter was a mere 0.6 percent – the lowest number in three years. China may be back on its pre-crisis path of lower growth as the “new normal.”

Source: OECD.Stat (data retrieved on 04.06.2021)

Electricity demand in China

Official data on China’s GDP development is not without controversy and has even been questioned by the highest political authorities in the past.

For example, the current prime minister Li Keqiang is reported to have pointed out as early as 2007 that it would be useful to include other indicators, such as electricity data, for a more realistic picture of China’s economic development, especially concerning the manufacturing sector. We endorse this addition to the GDP data in the following.

Electricity demand data for China from the International Energy Agency for 2020 (more recent data are not yet available) paint a similar picture as GDP data: The delayed onset of the pandemic in China and the earlier onset and more resilient economic recovery are clearly evident. Also, the level as of April 2020 is, in some cases, significantly higher than the previous year’s level.

China Manufacturing Production Index

The Manufacturing Production Index published by the National Bureau of Statistics of China measures economic activity in the manufacturing sector. As with the U.S. Manufacturing Production Index, production activity is calculated as the change compared with the same month of the previous year. This data has only been available since the beginning of 2013, so there is no comparison with the economic crisis after the Lehman bankruptcy.

In both January and February 2020, production measured in this way was more than 15 percent below the level in January and February 2019. Still, since April 2020, the level for the same month in 2019 has been exceeded.

In each of the last four months of 2020, production activity was about 7.5 percent above the level of those four months in 2019. In the first two months of 2021, an impressive peak was reached of 39.5 percent, catching up from the crisis. Numbers go down in the following months, but growth levels are still substantial.

Source: Trading Economics, based on the National Bureau of Statistics of China (data retrieved on 04.06.2021)

The Chinese government’s crisis management

Unlike Germany, the European Union, and the United States, China initially refrained from launching a large-scale aid program to counter the economic effects of the coronavirus crisis. For one thing, the government in Beijing was reluctant to do so because of the high level of public debt.

For another, it had already enacted various tax relief measures in 2019 in response to the impact of the U.S.-China trade dispute, which totaled 2.3 trillion yuan (about 300 billion euros) in lost tax revenue. However, the government has since announced aid programs totaling 4.8 trillion yuan (about 600 billion euros). The package includes tax breaks, lowering of rents, and a bond program, among other things.

The Chinese response was also more restrained in terms of monetary policy. The Chinese central bank launched special credit programs in February and cut the key interest rate from 4.35 to 3.85 percent in April. However, in the summer, it announced a transition to far-reaching monetary normalization, which has not yet been reflected in an increase in the key interest rate.

To sum up, China appears to have managed the COVID-19 crisis quite successfully, being the only large economy worldwide to grow in 2020. The quick recovery of the Chinese economy has also been an engine for recovery in other world regions. However, since the pandemic is far from over, the risk of renewed outbreaks are looming over China, too.