Rebound tipped for nation’s economy
Business could pick up soon with a gradual recovery in household spending, effective virus curbs
China’s economy is expected to stabilize and rebound in the coming months on better containment of COVID-19 outbreaks and stronger macro policy support, and conditions exist for the nation to meet its major economic targets in 2022, economists and industry experts said.
Despite mounting pressure from the pandemic and a more complicated external environment, they believe the country has the policy tools and relatively large policy space to stabilize the overall economy, while the impact of COVID-19 outbreaks will likely be temporary.
They estimated that economic activity could pick up as early as May with a gradual recovery in household spending and strong support from investment growth.
Considering the resilience of China’s economy and its strong and targeted fiscal and monetary policy support, Zhang Dawei, vice-chairman of the China Center for International Economic Exchanges, believes China will likely meet its annual growth target of about 5.5 percent this year.
Attributing China’s weakening economic activity since March to the severe disruption caused by a resurgence in domestic COVID-19 cases, Zhang told a recent seminar in Beijing that the nation may see a rebound in some key economic indicators in the following months.
His views were echoed by Sheng Laiyun, deputy head of the National Bureau of Statistics, who said in an interview with Xinhua News Agency that the economy is likely to rebound as a result of better control of COVID19 and the government’s strong policy support.
He noted that COVID-19 outbreaks in regions like Jilin province and the city of Shanghai have been effectively controlled in May, with work and production having resumed in an orderly manner. Some leading economic indicators, such as electricity generation and power consumption, have already shown positive signs, Sheng added.
China’s economy cooled in April with a drop in both industrial production and consumption, as COVID-19 outbreaks severely disrupted industrial, supply and logistics chains. NBS data showed the country’s value-added industrial output and retail sales fell by 2.9 percent and 11.1 percent year-on-year, respectively, last month.
Fu Linghui, an NBS spokesman, said at a news conference on May 16 in Beijing that while China’s economic activity in April was severely affected by the pandemic, the impact would be temporary.
Fu said the fundamentals sustaining China’s steady and long-term economic growth remain unchanged, and the country has many favorable conditions to stabilize the overall economy and meet growth targets.
“With the government’s effective measures to expand domestic demand, ease the pressures for enterprises, ensure supplies and stable prices, and safeguard people’s livelihoods, the economy is expected to improve in May.”
Luo Zhiheng, chief economist at Yuekai Securities, said the disruption to industrial and supply chains affected China’s consumption, services, industrial production and exports. The country is facing pressure from weaker expectations amid COVID-19 outbreaks and changes in the international environment.
He called for a strong fiscal and monetary response to shore up growth, including the issuance of special treasury bonds, a reduction in the reserve requirement ratio and an interest rate cut.
Luo said he expects to see positive growth in industrial production in May and GDP growth close to 4 percent in the second quarter on better control of the epidemic and strong policy support.
Looking ahead to the second half of the year, he said China’s GDP may grow by over 5 percent with the government’s effective measures to control the pandemic and implement supportive policies.
Despite the drop in industrial production and consumption in April, the NBS data showed fixed-asset investment rose by 6.8 percent yearon-year in the January-April period. The NBS said investment in infrastructure construction and manufacturing jumped 6.5 percent and 12.2 percent, respectively, during the first four months.
Iris Pang, chief China economist at Dutch bank ING, said this implies infrastructure investment is progressing and she believes those investments will continue to be the main growth engine this year in giving extra strength to the economy, which in turn will create more jobs for people.
Pang said reports that COVID-19 outbreaks in China have led to the loss of export orders in Southeast Asia is a temporary matter since it is not easy to change the whole production chain.
“There are some goods that could eventually be produced outside China, even those export orders given to Chinese companies. These would be less capital-intensive. And China will then focus on more capital- and technology-intensive products and services,” Pang said. “But this is a process that won’t happen overnight. It takes time. For now, we do not expect China’s export growth to fall tremendously for too long.”
Looking ahead, Zhou Maohua, an analyst at China Everbright Bank, said there is relatively large room for fiscal, monetary and other policies, and China has various policy tools in hand.
China may see a recovery in consumer demand, and economic activity could pick up as early as May given the containment of the pandemic and the existence of strong policy support for hard-hit sectors and enterprises, Zhou said.
Zhou said the nation’s credit expansion cooled in April as a rise in COVID-19 cases dampened financing demand, increasing the likelihood of loan prime rate cuts in May to support the real economy and stabilize growth.
China has recently strengthened efforts to step up macro policy support. A meeting of the Political Bureau of the Communist Party of China Central Committee on April 29 called for stronger macroeconomic policy adjustment to stabilize the economy and keep it running within an appropriate range.
Policymakers have since pledged more measures, with officials from the Central Committee for Financial and Economic Affairs and the People’s Bank of China saying on May 12 that the nation is considering new policy tools to support the economy.
The increment in aggregate social financing — the total amount of financing to the real economy — was 910.2 billion yuan ($134 billion) in April, down 946.8 billion yuan yearon-year, the PBOC said on May 13.
China’s new yuan-denominated loans totaled 645.4 billion yuan in April, down by 823.1 billion yuan yearon-year, the central bank said.
Considering the multiple downward pressures, Chen Chuanglian, deputy director of the Southern China Institute of Finance at Jinan University in Guangzhou, Guangdong province, said it will take some time for a robust rebound in China’s economy, and the turning point may occur at the end of the third quarter and the beginning of the fourth quarter of the year.
Given China’s relatively large policy room, Chen expects the government to continuously implement tax and fee reductions, especially for small and medium-sized enterprises, and increase fiscal support for related departments and local governments to combat the pandemic and ensure the normal operation of business activities in the domestic market.
China is considering additional fiscal policy support while mounting an all-out effort to put existing measures into place, providing a strong buffer against downward pressures, officials and experts said.
They added that large-scale tax refunds have started to benefit hardhit market players in the first four months of the year, an indication of the government’s proactive fiscal policy.
“Policies on all fronts are being implemented at a faster pace,” Xu Hongcai, vice-minister of finance, said at a news conference on May 17.
The ministry will step up efforts to formulate additional policy tools, strengthen adjustments and beef up the role of fiscal policy in stabilizing the economy as it strives to achieve this year’s economic and social development targets, Xu said.
Specifically, the implementation of favorable tax and fee policies helped vitalize market players by reducing the tax and fee burden of enterprises and increasing their cash flow by more than 1.6 trillion yuan so far this year, Xu added.
The country started large-scale value-added tax credit refunds to small and micro enterprises in April, when approximately 800 billion yuan was refunded, accounting for more than one-third of the country’s fiscal revenue in April 2021, official data showed.
With the tax refunds equivalent to a reduction in fiscal revenue, the nation’s fiscal revenue dropped 4.8 percent year-on-year to about 7.43 trillion yuan in the first four months, the Ministry of Finance said on May 17.
Industry experts said the additional fiscal and monetary measures being considered by the government are critical for meeting this year’s economic development goals, with the issue of special treasury bonds being one of the sensible options.
The country will speed up the tax refunds that can directly boost the cash flow of companies and mitigate their financial strain, Xu said, adding that refunds of outstanding VAT credits to medium-sized and large enterprises will start ahead of schedule in May and June, respectively.