A granular view of China’s recent GDP growth
China’s official GDP growth rate dropped from about 6% in the fourth quarter of 2019 to -6.8% in the first quarter of 2020, and then rebounded to 3.2% and 4.9% in the second and third quarters, respectively, of 2020.
Clark and al. confirm that the alternative indicators developed by the New York Fed do indeed indicate that the growth rebounds in the second and third quarters were strong, but perhaps not as large on average as portrayed in the official statistics. Manufacturing, infrastructure investment, and property construction have rebounded quite strongly, responding to government-directed fiscal and credit stimulus. By contrast, consumption in China has experienced a slower rebound and showed positive year-over-year growth only in the third quarter of this year.
China’s exports for the first eight months of 2020 grew by 5.8% suggesting a better performance than 2019. But looking deeper into the data Hunter Clark finds that for the most part this export boom is due to a significant increase in medical equipment and similar medical gear for both household and medical professional use. In fact, China’s exports to the world of face masks alone grew by as much as over 3400% in May.
But this export led and policy boosted growth is not expected to last: by the first or second quarter of next year, China may well be tightening macroeconomic policy again due to concerns over financial stability. At the same time structural headwinds, such as demographics and declining returns to capital accumulation, present even before the COVID-19 crisis, will negatively affect growth going forward.
COVID-19 Has Temporarily Supercharged China’s Export Machine
By: Hunter L. Clark – New York Fed
How Has China’s Economy Performed under the COVID-19 Shock?
By: Hunter L. Clark, Jeffrey B. Dawson, and Maxim Pinkovskiy – New York Fed
Financial instability concerns
Nonfinancial corporate debt as a share of GDP increased from 149% at the end of 2019 to nearly 160% by the end of March 2020. Data from the China Banking and Insurance Regulatory Commission shows an uptick in outstanding nonperforming loans (NPLs) in the first half of 2020 among most banks except in city commercial banks and joint stock banks. In addition, with the onset of the pandemic, the banking regulator has asked banks not to classify as non-performing loans that are 90 days past due. As a result, COVID has probably exacerbated the issue of underreporting nonperforming loans in smaller Chinese banks.
As China recovers from the pandemic, will zombie firms return?
By: Tianlei Huang – Peterson Institute for International Economics
