According to official statistics, China’s economic growth accelerated to 6.5 percent in the fourth quarter, up from 4.9 percent in the third quarter, according to the country’s economic data for 2020. For the year as a whole, China’s GDP grew by 2.3 percent. These figures, without questioning their reliability, need to be put in the proper context for a more macro comparison to be meaningful.
The official Chinese media and Western admirers of China’s commentary, of course, emphasize the bright side of the data and suppress its dark side. After China released its data, many Chinese and foreign media outlets, both in China and abroad, hailed China as one of the few economies to record growth rather than contraction in the face of the global pandemic. While this is certainly true, looking at the growth and contraction figures alone is not very meaningful. The official annual growth rate of 2.3 percent was also China’s lowest growth rate since 1976. This was pointed out by some Western media through their official social media accounts when the data first appeared, but after half a day, this angle of interpreting the data disappeared altogether, overshadowed by the main theme of “China successfully fought the Epidemic and recorded positive growth.
Later on, a Hong Kong online media took a closer look at the data and found that the amount of social fixed asset investment in 2020 was actually contracted compared to 2019, but the official annual growth rate released was still positive. Such self-contradiction of official data happens from Time to time. So to judge the reliability of the official data, scholars often have to refer to some unofficial data to have a more complete picture.
One of the data that can be used as a reference is the Purchasing Managers’ Index (PMI) of the manufacturing industry. This data, estimated from a sample survey asking companies about their purchases of materials, parts, and machinery, reflects companies’ assessments of demand in the coming months based on current economic temperatures. The survey is conducted in China by the National Bureau of Statistics and Caixin magazine (formerly HSBC), respectively, and the sample is huge and has always been a leading indicator of China’s economic performance accurately. Since there are official and unofficial versions of the monthly data, the trends shown in both versions have always matched, making falsification more difficult. The Caixin sample is more focused on small and medium-sized private enterprises, while the official sample is focused on large state-owned enterprises. The difference between the absolute values of the two data allows us to roughly grasp the differences in the performance of the two economic sectors.
China’s manufacturing PMI for 2020 shows a strong rebound already in the middle of the year, after a big contraction at the beginning of the year, which peaked in the fall. This trend, which coincides with the GDP data a few months later, also coincides with Beijing‘s policy of forcing factories to resume work starting in March and April. The manufacturing rebound, however, is still dependent on demand. There are two main sources of demand that triggered the rebound in China’s manufacturing sector in the second half of the year. The first is investment growth from the explosion of lending in January and February, when the economy was at its worst in terms of contraction. Monthly data on new loans show that China’s new loans in January and February were at an all-time high, more than double the peak of the loan boom in 2009/10 when the global financial crisis was fought. 2020 will see a new round of loan booms as China’s already excessive steel production reaches a record high. It is foreseeable that after next year, the already serious overcapacity and corporate debt will be even more serious.
The second source of demand is the global demand for Chinese products, especially medical supplies, during the work stoppage under the plague. This is reflected in the strong growth of Chinese exports in the second half of the year. However, this growth in foreign demand is temporary and stems from work stoppages in other parts of the world. After the outbreak, demand growth will also slow down when developed economies finish serving their needs.
Therefore, China’s economic rebound in the second half of 2020 will be unsustainable in 2021, and China will have to face the aftermath of the rebound, specifically the worsening of overcapacity and corporate debt problems. The December manufacturing PMI figures, which have already slowed down, indicate that China’s economic situation will not be optimistic in 2021 and the following years.
China’s economic rebound in 2009/10 touched the world, but after 2011, the country has experienced a long economic slide, debt crisis and capital flight. In order to solve these problems, China launched the Belt and Road, accelerating the export of capital and triggering the intensification of conflicts between China and neighboring countries with developed countries such as the United States. These trends, as can be expected, will accelerate in the coming years.
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