Violent crisis in 40 years: China's economy is growing despite Corona

Violent crisis in 40 years
China's economy is growing despite Corona

As one of the very few economies, China will also grow in the crisis year 2020. Compared to the rapid development of the past decades, however, the economy is weakening sharply. For this year, the experts predict a quick recovery, but also see a risk.

Due to the Corona crisis, the Chinese economy grew more slowly in 2020 than it has for over four decades. The gross domestic product increased by 2.3 percent compared to the previous year, as the statistics office announced. This is the worst performance since 1976, which is due to the historic slump at the beginning of the year as a result of the Corona outbreak. In 2019 it was still enough for an increase of around six percent. Nevertheless, the People's Republic is in a good position, as all other large economies have shrunk according to the forecasts of international organizations such as the OECD. For comparison: According to an initial estimate, the German economy has slumped by 5 percent.

The economic recovery in the world's second-largest economy after the USA had recently picked up: In the fourth quarter of 2020, China achieved surprisingly strong growth of 6.5 percent compared to the same period in the previous year, after only 4.9 percent in the summer quarter. "These are very strong numbers," said analyst Tommy Xie of the OCBC finance house in Singapore.

Around this time last year, the Chinese authorities in and around Wuhan began reporting large numbers of cases of mysterious viral pneumonia. After Beijing took the unprecedented step to seal off Wuhan on January 23 last year, economic activity across the country virtually stalled for much of the following months, until the virus was largely gone. Unlike Western governments like the US, which relied on lowering lending rates and injecting cash into consumers for their stimulus measures, Beijing focused on bringing factories back into operation while interest rates remained relatively high.

Worries about new corona outbreaks

China's factories began ramping up production in April, just as much of the rest of the world's manufacturing capacity came to a standstill due to the spreading pandemic. This enabled China to produce and export large quantities of medical equipment such as face masks, as well as laboratory equipment, laptops, and computer monitors. Domestic consumption remained weak well into the summer, however, as Chinese consumers feared a new wave of Covid-19. Retail sales only returned to pre-pandemic levels in August. Many economists assume that China will show GDP growth of 8 percent or more in 2021.

The world export champion is currently benefiting from increasing demand for its products. The country produces many goods that are in demand worldwide in the corona pandemic – such as medical equipment such as masks or laptops and screens for the home office. Domestic demand also recovered, to which the government contributed with economic stimulus programs. This year, the upswing is likely to intensify considerably: The International Monetary Fund (IMF) is predicting strong growth of 7.9 percent for China. "We think the prospects for the near future remain good," said economist Julian Evans-Pritchard of Capital Economics. "We still see a lot of potential for consumption, as households will reduce the savings they accumulated last year."

Concerns of a pandemic flare-up in the country have increased after the sharpest increase in new infections in one day in more than ten months was recently recorded. However, the consequences for the economy are controllable, said the head of the statistics bureau, Ning Jizhe. However, in some regions consumption could suffer from the new restrictions. Authorities quarantined more than 28 million people at home in January to help contain the spread of the disease. China has the experience and the ability to control the virus, Ning said.

. (tagsToTranslate) Economy (t) GDP (t) Economy (t) China (t) Exports (t) Corona crisis