"2Q China Economic Recovery, Questionable Whether It Will Extend to Developed Countries"

China's Economy Recovers Half of COVID-19 Shock in 2Q
"Recovery Led by Government and State-Owned Enterprises... Consumption Still Unstable"
Premature to View as Global Recovery Centered on Advanced Economies

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] In the second quarter of this year, China's economy recovered half of the shock caused by the novel coronavirus infection (COVID-19). Nevertheless, the service sector has not significantly recovered, and there are criticisms that the recovery is centered on state-owned enterprises reflecting the government's intentions. Since China's COVID-19 prevention measures, mainly government-led lockdowns, differ from those of other advanced countries, it is analyzed that China's economic recovery is unlikely to lead to the recovery of advanced economies.

On the 19th, Eugene Investment & Securities forecast that China's gross domestic product (GDP) will maintain an annual growth rate in the 5% range. Since positive growth appeared in the second quarter, the recovery trend is expected to continue.

In fact, China's GDP in the second quarter recovered half of the decline from the first quarter. GDP, which decreased by 10.0% quarter-on-quarter in the first quarter, reversed to grow by 11.5% in the second quarter. Compared to the same period last year, it recorded 3.2% growth, close to half of the first quarter's decline rate (-6.8%). In terms of amount, the second quarter GDP increased by 4.2 trillion yuan (approximately 723.45 trillion KRW) compared to the previous quarter. This means half of the 6.4 trillion yuan decline in the first quarter was recovered.

The monthly trend also showed signs of recovery. Last month, industrial production increased by 4.8% year-on-year, marking four consecutive months of improvement since February. Retail sales decreased by 1.8% year-on-year, with the decline narrowing for four consecutive months. Fixed asset investment in urban areas in the first half of the year improved with a 3.1% decrease year-on-year. Lee Sang-jae, an economist at Eugene Investment & Securities, said, "China's economy recovered half of the COVID-19 shock in the second quarter. Although there are still shortcomings in the recovery and uncertainties in export conditions, considering the government's growth intentions, annual GDP growth in the 5% range is expected to continue in the second half of the year."

Nevertheless, there are criticisms that it is premature to assume that the recovery trend seen in China will also appear in advanced economies. First, China's economic recovery is not a 'healthy recovery' that can be expected to be driven by the autonomous growth of the private sector. The economist explained, "In the second quarter's industry-specific GDP, manufacturing recovered nearly half of the first quarter's decline, but the recovery in the service sector was far behind, and the gap between industrial production and retail sales growth rates in June remains. Since this is a government-led recovery centered on state-owned enterprises, which is a unique characteristic of China, it is unreasonable to apply this to advanced economies."

There is also a difference in COVID-19 prevention measures. In China's case, the country succeeded in COVID-19 prevention through strong nationwide lockdowns, but this method is difficult for existing advanced countries to apply easily. In fact, advanced countries including the United States are still exposed to the risk of COVID-19 spread. The economist said, "China's economy still faces uncertainties such as insufficient consumption recovery and limited export recovery due to the restricted recovery of advanced economies. However, strong government-led growth-driving policies will continue. Although it will not reach last year's level (annual growth of 6.2%), it is expected to grow by 5.2% year-on-year in the second half of this year and 1.7% annually, differing from advanced countries experiencing significant negative growth. However, this should not be seen as a sign of global economic recovery."

This content was produced with the assistance of AI translation services.