BOK: "Despite COVID Spread, China's Economic Recovery Continues... Positive for Exports"

Bank of Korea Overseas Economic Focus

[Asia Economy Reporter Kim Eun-byeol] Despite the global spread of the novel coronavirus infection (COVID-19), the Chinese economy has recovered faster than other countries and is expected to continue its improvement trend. China's economy in the second quarter grew by 3.2% year-on-year, turning positive compared to the first quarter (-6.8%). This contrasts with the record negative growth experienced by the US and Europe.

On the 30th, the Bank of Korea cited the following main factors for China's rapid economic recovery in its 'Overseas Economic Focus': ▲ normalization of manufacturing operations ▲ expansion of infrastructure investment ▲ increase in consumer goods exports.

The Bank of Korea stated, "On the supply side, the Chinese government's strong quarantine measures succeeded, leading to a rapid normalization of production activities centered on manufacturing," and "On the demand side, government-led infrastructure investment increased to offset sluggish private consumption, driving economic recovery." According to the Chinese Ministry of Industry and Information Technology, as of the end of March, the average operating rate of industrial enterprises nationwide in China was surveyed at 98.6%. Infrastructure investment in China in the second quarter also increased by 5.8% year-on-year, expanding the growth trend.

Additionally, "Economic stimulus measures in major trading countries stimulated demand for medical supplies and consumer goods, positively affecting China's exports, which have a high proportion of consumer goods," it added. China's export growth rate in July was 7.2%, and COVID-19 medical supplies, including masks, contributed 7.0 percentage points to China's export growth (+0.1%) in the second quarter.

The Bank of Korea forecasted that "(China) has considerable capacity to absorb the COVID-19 shock through expanded investment in infrastructure, housing, and inventory, and with the global resumption of operations, intermediate goods exports are gradually recovering, while consumption conditions for vulnerable groups and the middle class are also expected to improve progressively."

Considering the Chinese government's sound fiscal capacity, willingness to stimulate the economy, flood damage recovery, and stable housing market conditions, infrastructure and housing investments are expected to maintain a high level for the time being. Regarding inventory investment, it is viewed that due to prior adjustment processes influenced by the US-China trade dispute, the burden of inventory re-stocking is not significant.

As production activities normalize in major countries, exports of intermediate and consumer goods are also showing signs of recovery, and government efforts to increase employment and stabilize the housing market are expected to positively influence the improvement of consumption sentiment among vulnerable groups and the middle class, which had been severely contracted after the COVID-19 outbreak. The Bank of Korea stated, "the recovery trend of the Chinese economy is expected to have a positive impact on South Korea's exports to China," but added that the possibility of constraints on the recovery trend remains due to intensified US-China conflicts and the potential resurgence of COVID-19 within China.

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