China's Economy Recovers Rapidly Alone Despite COVID-19... Short-Term Boosts for Korea's Exports and More

Chinese tourists visiting the Great Wall of China in Beijing on October 1st to celebrate the National Day.
[Image source=EPA Yonhap News]

[Asia Economy Reporter Kim Eunbyeol] Although the global economy was shocked by the aftermath of the novel coronavirus infection (COVID-19), the Chinese economy has shown a recovery trend alone and continues rapid growth. For South Korea, which has a large export share to China, the recovery of the Chinese economy is welcome news in the short term. However, the continued trend of yuan appreciation and the won showing a synchronized trend, causing the exchange rate to decline, could hamper the improvement in exports.

According to the National Bureau of Statistics of China on the 30th of last month, China's manufacturing Purchasing Managers' Index (PMI) for September rose to 51.5 from 51.0 in August. It exceeded the baseline of 50 for the seventh consecutive month and also surpassed the market expectation of 51.2.

The PMI is an important leading indicator for assessing the economy; exceeding the baseline of 50 indicates economic expansion, while falling below indicates contraction. Recently, the Chinese economy is evaluated to be continuously recovering. China's manufacturing PMI plummeted to a record low of 35.7 in February, when the COVID-19 shock was greatest, but has recorded above 50 since March.

The non-manufacturing PMI, announced together on the same day, continued its expansion phase at 55.9. It rose by 0.7 points compared to the previous month, showing favorable conditions. The non-manufacturing PMI, which includes services and distribution, had never fallen to 50 since January 2007 but plunged to 29.6 in February. The National Bureau of Statistics of China evaluated, "The Chinese economy is continuing a stable recovery trend," and "both demand and supply are rising again."

Outlooks on the Chinese economy by external institutions are also positive. The World Bank (WB) raised its economic growth forecast for China from 1% to 2% in a report released on the 28th of last month. The international credit rating agency Standard & Poor's (S&P) also revised up China's economic growth forecast for this year from 1.2% to 2.1%. Market experts expect China's growth rate to be higher than anticipated as manufacturing production and new orders continue.

The Chinese government also conducted nationwide consumption promotion events to strengthen domestic demand momentum before the Mid-Autumn Festival and National Day holidays (October 1?8). The period from the 9th of last month was designated as a consumption promotion period, during which capacity limits at movie theaters and tourist sites were raised, and various events were held. Beijing, Shanxi Province, and others issued cultural and consumption coupons and implemented free admission to tourist sites and restaurant weeks.

The Bank of Korea's Beijing office stated, "Going forward, the Chinese economy is expected to record a growth rate of around 5% in the second half of the year and over 2% annually, as both production and consumption recover." Furthermore, based on production recovery, export growth expansion, increased investment demand, and the recovery of consumer sentiment that had been depressed by COVID-19, the Bank of Korea expects the Chinese economic recovery in the second half to become more robust.

In South Korea's case, the recovery of the Chinese economy is immediately reflected in exports. Last month, exports recorded $48.05 billion, up 7.7% year-on-year. By region, exports to China, the largest market, increased by 8.2%, and the four major markets including the United States (23.2%), the European Union (EU, 15.4%), and ASEAN (4.3%) all showed growth for the first time in 23 months. However, the rapid recovery of China's economy and the continued won appreciation trend, as well as the Chinese government's industrial structure upgrading narrowing the space for Korean industries, are aspects that need to be cautiously watched.

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