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Home / Business News / China: From Covid +ve to positive GDP growth

China: From Covid +ve to positive GDP growth

From being the first country where the Covid-19 virus was detected, China is all set to become the only major economy in the world that will grow in 2020.

business Updated: Oct 20, 2020, 05:18 IST
Roshan Kishore
Roshan Kishore
Hindustan Times, New Delhi
A woman wearing a face mask uses her mobile phone at the entrance of Auchan supermarket in Beijing on October 19, 2020.
A woman wearing a face mask uses her mobile phone at the entrance of Auchan supermarket in Beijing on October 19, 2020.(AFP Photo)

From being the first country where the Covid-19 virus was detected, China is all set to become the only major economy in the world that will grow in 2020. China’s gross domestic product (GDP) expanded 4.9% in the July-September quarter, according to statistics released by the country’s National Bureau of Statistics. Given its position as the world’s second largest economy, China’s V-shaped recovery has generated hopes of a rare growth cushion across the globe.

China’s V-shaped recovery

China’s economic turnaround after the pandemic’s impact has followed a V-shaped recovery pattern. Its GDP contracted by 5.3% in the January-March quarter, grew 3.2% in April-June, and further improved in July-September. While the September quarter figure is lower than the 5.2% estimated by a Reuters poll of analysts, China is all set to become the only major country to escape a GDP contraction this year, Eswar Prasad, an economist from Cornell University, told the Financial Times. The International Monetary Fund (IMF) has predicted that China’s GDP will grow 1.9% this year in its World Economic Outlook released earlier this month.

 

The pandemic has revived manufacturing in China

China’s GDP turnaround has been “stoked by a state-backed industrial boom,” the Financial Times said. Industrial production grew 6.9% in the September quarter, it reported. A look at the Purchasing Managers’ Index (PMI) number for China shows that the Covid-19 pandemic might actually have given a boost to industry. PMI manufacturing was lower than 50 from May 2019 to October 2019 , 50.2 in November and December 2019 and 50 in January 2020 before it collapsed to 35.7 in February. A PMI value above 50 signifies expansion in economic activity. The post-February numbers are actually better than what they were last year.

 

Containing infections key to economic recovery

China’s growth numbers also underscore the importance of containing the spread of the Covid-19 pandemic for an economic recovery. Not only did China quickly contain the spread of the virus, it has been able to prevent a second wave of infections so far, unlike other major countries. The US, which is the world’s largest economy, is beginning to see a third wave while countries such as India, even though there has been a dip in the first wave, continue to see a very high number of infections.

 

Will China’s resilience stoke protectionist policies?

China’s rise as an economic super power was driven by an export boom. This mercantilist trajectory, especially after the 2008 financial crisis, stoked a protectionist backlash in the world, especially in advanced countries like the US. The world’s two largest economies have been engaged in a trade war over the past few years. At a time when the rest of the world is staring at an economic contraction, China’s economic and trade performance – Chinese exports have increased by 10.2% in the July-September quarter -- could create strong incentives for world leaders to resort to protectionist measures. The growing geopolitical confrontation of countries such as Japan and India with China, and President Donald Trump’s attempts to use anti-China rhetoric in the forthcoming US election, could increase this possibility. Any such development could mitigate the tailwinds Chinese economic recovery may generate for the global economy.

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