China's economy grew at a record 18.3 per cent in the first quarter of 2021-- the fastest pace on record in gross domestic product (GDP) growth since quarterly records began in 1992. This is a major rebound following the historic contraction of the economy caused by the Covid-19 pandemic. China's economy shrank 6.8 per cent in the first quarter of 2020 following lockdowns to curb the spread of Covid-19. This growth rate outstripped the previous record GDP growth rate of 15.3 per cent in the first quarter of 1993.
Despite calamitous start in 2020, China was the only major economy to register growth albeit its weakest in decades at 2.3 per cent. This was the country's weakest expansion in little more than four decades, but still it was the only major economy to avoid contraction as other industrialised countries around the world struggled to deal with the consequences of the pandemic. China has set an economic growth target of 6 per cent for 2021. The cautious growth target indicates that the government is taking into account the risk of Covid-19 comeback. But according to a Reuters poll, the Chinese economy is expected to grow by 8.3 per cent in 2021 which would beat the government's 2021 annual growth target of 6 per cent.
National Bureau of Statistics (NBS) spokesperson Liu Aihua said, "The economic recovery in the first quarter of this year continued, and positive factors are accumulating. At the same time, we must also see that the Covid-19 epidemic is still spreading globally, international landscape is complicated and severe, the foundation for domestic economic recovery is not yet solid, and some service industries and small and micro enterprises are still facing more difficulties in their production and operation".
Other key figures released by the NBS also point to a continuing rebound. Industrial production which includes manufacturing, mining and utilities grew by 14.1 per cent and fixed asset investment, an indicator of expenditures on infrastructure, property, machinery and equipment were up by 25.6 per cent in March from a year earlier.
But it was consumer spending as reflected in retail sales that recorded the highest growth rate at 34.2 per cent. This outperformance, now with a recovering job market will contribute to further picking up in consumer spending. It is widely expected that consumer spending will take over the lead as the year progresses as consumers are heading back to shops and restrictions continue to ease in the country. With increased vaccination and further improvements in labour market, conditions will further add to boost consumer spending.
Trade also provided a strong boost to the growth. Imports jumped more than 38 per cent compared to a year earlier and a clear sign domestic demand is picking up and the strength in imports was broad-based indicating a domestic consumption-led economic recovery. Exports grew by 31 per cent during the same period.
Overall, there are clear indications that consumption, industrial output and investment are all gaining momentum as well as imports and exports and the country's economic recovery is broad-based. Such a broad-based recovery has been helped by strict virus control and emergency financial support for businesses. More importantly the growth momentum of the economy also demonstrates the resilience of the economy to weather through calamitous events such as the pandemic as well as hostile economic warfare currently being waged by the Biden administration against China which was initiated by his predecessor President Donald Trump. In fact, President Biden is further intensifying the economic warfare against China.
Urban unemployment ticked down to 5.3 per cent and the government has set a target of creating 11 million new urban jobs for this year. But the unemployment rate for workers aged between 16 and 24 at the end of March was 13.6 per cent, up 0.3 percentage point from a year earlier and much higher than the urban unemployment rate of 5.3 per cent.
Data released also showed inflation as reflected in consumer prices was rising only at a very modest rate despite rising production costs. This gives rise to a very moderate inflation expectation with the flow on effects on interest rates. However, with the economy bouncing back, China's central bank is now focused on slowing down credit growth to help contain financial risks.
The sharp uptick in growth was partly due to "incomparable factors such as the low base figure of last year and increased working days due to staff staying put during the lunar new year", said Liu. The big jump also reflects the deep slump in early 2020, hence influenced by low base effects. Despite the record headline growth figure, the underlying trend appears to be towards slower pace of growth.
Also, some observers opine that quarter on quarter growth would be a better indicator of the current robustness of the Chinese economy. They further indicate that economic growth to remain modest during the rest of the year as the recent boom in some sectors such as construction and exports level off. As such the outlook for the rest of the year is less certain. Also, with the economy already running above the pre-pandemic trend and the government's fiscal and other support programmes eased or withdrawn, will also add to leveling off the rebound.
As the Chinese economy is moving towards pre-pandemic growth trajectory, that could further help propel the Chinese economy to be the largest economy in the world by 2030. In fact, China's growth performance will be welcomed around the world as the contributing factor providing stimulus to most other countries in the world. But this will not be viewed favourably by the US despite the US-China trade and investment relations support about 3 million jobs in the US. The US rather considers the rapid expansion of the Chinese economy as a threat to its global hegemony.
China's plan to introduce digitised Yuan which will enable countries around the world some solution to deal with US economic sanctions thus weakening the dollar supremacy. Now this already attracted very hostile reaction from many policy planners in the US and termed it as a national security issue. Also, in the similar vein the current economic growth performance of China is also viewed as a national security threat to the US.
Given China's expanding economy and growing strategic weight around the world in contrast to the relative decline of the US' global hegemony has created a deep anxiety within the US. This anxiety of the US about its relative decline is driving the country's policy planners to their reflexive response to undermine China's rise.
Meanwhile, China is also preparing a long term strategy to deal with a declining but still very dangerous US. The Chinese political leadership has ditched any expectation of normal relations with the US. They have now put forward plans to promote a "dual circulation" economic strategy which President Xi Jinping outlined-- "Only by being self-reliant and developing the domestic market and smoothing internal circulation can we achieve vibrant growth and development, regardless of the hostility of the outside world".
Leaving the US reaction aside, the significant increase in the growth rate reflects the effectiveness of the measures to counter the pandemic and to stimulate the economy. This has resulted in achieving an economic performance far beyond the performance of other major industrialised economies of the world.
Such a spectacular growth performance in the current global economic climate is likely to provide a stimulus to the global economy. As such, the view of China as an ever more key player in the international economic arena is gaining increasing traction around the world.