Yu Yongding

The View | China’s economic health will depend on its Covid-19 recovery

With the pandemic persisting, Beijing has been alert in applying policy remedies where needed. But whatever else it does, China’s economic performance will inevitably be determined by the success of its fight to control the coronavirus

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Students wait at an observation area after receiving Covid-19 vaccines at a school in Zhengzhou, Henan province, on August 19. China has some way to go in vaccinating its population. Photo: Xinhua

Yu Yongding

Published: 12:30pm, 27 Aug 2021

In the second quarter of 2021, China’s GDP grew by 7.9 per cent year on year. That was a relatively strong performance, especially given the enduring effects of the Covid-19 pandemic on the global economy.

But, for China, it represents a disappointment: a Caixin survey of economists showed the median estimate for the second quarter was 8.2 per cent growth.

Chinese economists broadly agree that China’s potential growth rate is 6 per cent. So, taking into consideration the base effect, China’s year-on-year growth rate in the four quarters of 2021 should be 19.1 per cent, 8.3 per cent, 6.7 per cent, and 5.5 per cent.

Yet, in the first quarter, growth amounted to 18.3 per cent. This weaker-than-expected performance is, to a significant extent, a result of official policy.

While Chinese authorities implemented expansionary fiscal and monetary policy early in the pandemic, they were eager to normalise it, for fear that it would fuel inflation and compound financial risks.

A woman sells food at a wet market in Shanghai on August 8. Chinese policymakers are mindful of the inflationary effect of any fiscal and monetary stimulus. Photo: EPA-EFE

Fiscal retrenchment has been particularly rapid. In the first half of 2021, China’s general government expenditures increased by only 4.5 per cent, while revenues increased by 21.8 per cent.