According to the latest Gross Domestic Product (GDP) figures released by China on October 19, the country has completed the upward leg of a V-shaped rebound amid a tanking global economy. The economy is reported to have expanded by 4.9% in the quarter between July and September as compared to last year, which is close to its pre-pandemic pace.
With this, China has become the first major economy to recover from the COVID-19 pandemic. Amidst the regular scepticism regarding the authenticity of data, economists from institutions like the American Federal Reserve have come to the conclusion that the ‘current rebound is big and real’. A second wave of COVID-19 infections has prevented a V-shaped recovery in other parts of the world.
China, the first country to face the pandemic, had its economy register the worst quarterly fall in output in the first quarter (January-March) since 1976, its GDP contracting by 6.8%. However, given the decisive response to the crisis, the world’s second-largest economy was also the first to come out of it. In the second quarter (April-June), China was the only economy to report modest growth of 3.2% as compared to the second quarter in 2019. In comparison, the following graph shows the contraction suffered by othercountries, in the second quarter:
Year-on-Year Percentage of GDP growth rate of different Countries since 2018
Source: OECD Database (https://data.oecd.org/gdp/quarterly-gdp.htm#indicator-chart)
According to experts, the sustained recovery in China in the third quarter is balanced and is driven by rising consumption. As other parts of the world brace for a second wave of infections, Chinese cities have returned to normal. Schools and offices have reopened. In September, industrial production increased by 6.9% and retail sales increased by 3.3% as compared to last year. Auto sales in September also rose by 12.8%. Tourism has resumed and domestic air travel has surpassed pre-pandemic levels.
It has been possible due to crucial steps taken by China right at the beginning. In the initial phase of the crisis, China successfully controlled the virus and allowed economic activity with a few restrictions. While schools, malls and the like remained closed, China cautiously opened up factories and launched new infrastructure projects. The initial phase of recovery was fuelled by industrial production and investment spending, contributing five percentage points to growth in the second quarter and culminating into an overall year-on-year growth rate of 3.2%. At this point, consumption contracted more than two percentage points.
The recent data reflects a more balanced recovery where contribution from capital formation declined to less than three percentage points, closer to a pre-pandemic level and consumption added close to two percentage points to a growth rate of 4.9%. As the pandemic unfolded, China resumed manufacturing, became the world’s biggest producer of protective equipment and its global merchandise exports hit a record high. Further targeted policy measures including a spurt in public spending, tax cuts and lowering of interest rates has enabled a recovery unseen in any other economy. Increased public investment helped offset weak private sector capital spending.
In the last few years, China has diversified its economy to be less dependent on exports. In the current atmosphere of declining international growth, its leadership has proposed a new strategy called ‘dual circulation economy’. The strategy is aimed at reducing reliance on overseas markets and technology while fostering domestic consumption and technological advancement. In a speech at Shenzhen in May, Xi Jingping said: “Globalisation is facing a reversal, with rising protectionism and unilateralism. The world economy is weakening as international trade and investment, science, technology … security and politics are all undergoing profound change.”
In comparison, India has been the worst-performing among the major economies in Asia during this crisis and will take the longest to reach its pre-pandemic growth rates. The economic contraction for India in the April-June quarter was an appalling 23.9%. Oxford Economics, in its report, ‘India: A reopening gone wrong’ suggested that they expected India’s GDP to further lose momentum from the third quarter once the initial reopening fades. Miguel Chano, senior economist at Pantheon Macroeconomics predicted that India will have an ‘L-shaped recovery’ due to the sharp contraction without any real economic comeback. Predicting a contraction of 10% for India’s economy this year, he said it was historic for an economy that has not seen a recession in its modern history for decades.
In an interview with NewsClick, economist Professor Arun Kumar estimated the contraction in GDP in India to be nearly 40%, taking the unorganised sector into account. According to him, the figure of -23.9% is representative of temporary figures from the organised sector, which will be subject to revision. He further argued that an estimated 80 crore Indians constituting 60% of the population are currently below the internationally-defined poverty line.
Speaking of China, with the International Monetary Fund (IMF) estimating the global economy to contract by 4.4% this year, China is the only G20 economy that is expected to grow.
The writer is an author and a researcher with Tricontinental: Institute of Social Research. The views are personal.