Chinese growth at record levels, but sustainability dim

China's economy grew by more than 18 per cent in the first quarter of the year compared with the same period of 2020, chalking up its strongest annual growth since quarterly records began in 1992.

The startling number shows the world's second largest economy rebounding from the lockdown in the opening months of last year as it reacted to the initial outbreak of COVID 19 with tough measures that shocked the globe.

Retail sales are up by more than one third as consumers unleash pent-up enthusiasm on reopened shops. Exports surged by almost 40 per cent as international demand recovers and industry and construction grew by just shy of a quarter.

China regained its preCOVID level of GDP by the end of last year, and the strong figure for first-quarter growth reflects the damage caused by the pandemic 12 months earlier, rather than a sustained rate of expansion now.

The quarterly growth rate was a less impressive 0.6 per cent, indicating the recovery has run out of steam. “The high GDP growth in the first quarter will not persist over the year. Most quarters should experience moderate growth because without base effects (from last year's low point) to swell the comparison, `super-high' growth will be very hard to repeat,” said economist Iris Pang at ING.

Growth over the rest of the year will in part depend on the rebound in the rest of the world, which will boost demand for Chinese exports.

Now the pandemic is largely in the past, Pang expects international politics and supply chains will become crucial factors affecting China's growth. “China-U.S. relations will be critical for China's economic growth, mostly in tech development. It is likely that the U.S. will continue to put more pressure on China on this topic,” she said.

“Concern about chip shortages is becoming a practical issue for businesses, from investment to production to exports and domestic sales. How long this will take to clear is unclear.”

Problems in the economy will also start to weigh on longer-term growth, according to economist Raphie Hayat at Rabobank.

“Despite the relative positive short-term outlook, we remain gloomier for the long term as China's aging population, high debt load, weakening productivity growth and international tensions will keep growth below the levels of the past 15 years,” he said.

Hayat predicted growth of 7.7 per cent for 2021 as a whole.