Chinese economy is recovering. But there are gaps | Analysis
The survey appeared to take the sheen off official Chinese statistics pointing to a more subdued picture of economic recovery.
China’s factory and services activity, according to Chinese official statistics released this week, continued to expand in December supported by pent-up demand and hot export demand, fueling Beijing’s recovery from the coronavirus shock. Its economy is expected to expand around 2% for the year, reflecting a recovery that beats other major economies still struggling to contain infections.
But a business survey released two days before the new official statistics were put out, appeared to take the sheen off official statistics pointing to a more subdued picture of economic recovery. It pointed to weak consumer spending and headwinds to Beijing’s efforts to encourage more lending to smaller, private sector businesses.
More significantly, data from the China Beige Book International, a provider of independent economic data, underlines that consumer-facing industries continue to lag. The growth in the services sector, for instance, was being driven by businesses in telecommunications, shipping, and financial services. Consumer-facing businesses such as restaurants and travel, however, continue to lag behind.
People haven’t started stepping out to eat at chain restaurants. The travel and hospitality sector recorded weak revenues too.
There has also been a sharp drop in sales growth for luxury goods, food and apparel in the fourth quarter, squeezing margins and hiring as well.
The China Beige Book survey, based on 3,300 interviews of business leaders between November and December, said China hadn’t fully recovered from the shock of the coronavirus pandemic yet. Roughly two-thirds of executives polled by the consultancy said they don’t expect sales, profitability and hiring to return to 2019 levels until at least three months of 2021..
Economists have already underscored that most of the spending is coming from the public sector, much of it based on a large stimulus plan, rather than private firms.
Keyu Jin, Professor of Economics at the London School of Economics, identified three reasons for concern around the Chinese economy. First, she underlined in the Japan Times, Chinese exports exceeded expectations because its industries, which reopened when the world was shutting down, acted as a global supplier of last resort. This, Prof Keyu argued, would reverse when global production sites reopen. Second, he said, the recovery had triggered a broader structural deterioration, following years of economic reorientation away from exports and investment and toward consumption. Third, she cautioned about the looming financial risks arising from the real economy, predicting an increase in the risk of bad debts that will present significant threats to financial institutions.
Already, the China Beige Book pointed to an increase in loan rejection rates for retail businesses from 14% to 38% in the final quarter of 2020 from the previous quarter. Rejection rates for small and medium-sized businesses rose to 24% in the final quarter, double the rate posted by large companies during the period.
Chinese President Xi Jinping appeared to recognise some of the challenges that lie ahead; the Central Economic Work Conference didn’t go as far as to warn of a “downward economic pressure” at its meeting in mid-December. But the statement from the three-day summit did assert at the end of the key annual policy meeting that there were many uncertainties, “the foundation for our country’s economic recovery is not yet solid” and the recovery would be “unstable and uneven”.