China rebounds from coronavirus crisis, economy grows 3.2% in Q2

However, Shanghai Composite slips 4.5% over policy tightening, foreign selling

Economies in Europe and the US are still languishing as the pandemic forces cities to shut down and shoppers to stay home. But one major country is growing once again: China.

The world’s second-largest economy expanded 3.2 per cent from April through June, compared to the same period last year, Chinese officials said on Thursday. It was an abrupt turnaround from the January through March quarter, when the economy shrank 6.8 per cent, the first contraction that China has acknowledged in nearly half a century.

The recovery points to the authoritarian government’s success in bringing the coronavirus outbreak under control with widespread testing and travel restrictions, after its early missteps delayed the response and fed public anger.

But the economic rebound also reflects the government’s continued reliance on spending on the building of highways and rail lines and other infrastructure projects to juice the economy, rather than on domestic consumption.

That approach raises questions about whether China’s economic turnaround can be sustained, and whether it can become the engine needed to drive the global economy out of a slump.

The Shanghai and Shenzhen stock markets in China fell 4.8 percent on Thursday as investors concluded that economic growth had become too dependent on government stimulus.

“It’s all investment,” said Hong Hao, the chief strategist at Bank of Communications International. “Consumption, which is the most sustainable part of growth, is doing much less, so therefore, the market sees it as a weakness in economic health.” China needs to rev up consumption at home because demand for its exports has slowed as other countries go into recession and unemployment grows globally. Factories in China are already cranking out furniture, consumer electronics and mass-market cars more quickly than consumers at home or abroad want to buy them.

Sales of groceries and other essentials have stayed strong in China throughout the pandemic. But the people’s willingness to spend on restaurant meals, nights at hotels and other nonessential goods and services has still not fully bounced back.

“The production recovery was much better than that of demand, with insufficient demand for optional goods,” said Stephan Wöllenstein, the chief executive of Volkswagen Group China.

The Shanghai and Shenzhen stock markets had surged 14 percent in the first half of this month through Wednesday’s close. The rally had been so strong that some analysts have worried it may be the start of another speculative mania like the one in early 2015 that led to a crash late that year and in early 2016.

The National Bureau of Statistics also said on Thursday that industrial production climbed 4.8 per cent in June from a year ago, while investment in fixed assets strengthened, especially for infrastructure. Retail sales remained fairly weak, falling 1.8 per cent last month, compared to a year earlier.

©2020 The New York Times News Service