Tracking China’s Economic Recovery: Data from January to October 2021

China’s National Bureau of Statistics (NBS) recently released economic data for the month of October, which indicates a stage of general stability and continuing recovery across critical areas of the economy. NBS noted that a slew of international uncertainties would remain a variable.

On October 15, China’s National Bureau of Statistics (NBS) released its main economic indicators up to October. Several indicators, namely industry value-added output, retail sales, investment, and employment, showed that economic operations continue to maintain a recovery trend, and the main macro indicators are generally within a reasonable range.

Although the Chinese economy still faces challenges in the property sector, strong performance on exports and retail sales as well as recovery from industrial electricity shortages give reason for confidence in the country’s investment climate.

In this article, we look at how China is navigating its ‘steady recovery’, discuss existing challenges, and what this all translates for foreign investors.

Economic growth indicators better than expected

In general, the total value of imports and exports of goods was RMB 31,672.7 billion (approx. US$4955.13 billion), up by 22.2 percent year-on-year (y-o-y) in the first 10 months. Although the external environment has become more complex and vulnerable to various uncertainties since the beginning of 2021, China’s exports exceeded expectations, providing a cushion for its economy. The total value of Chinese goods exports was RMB 1,940.8 billion (approx. US$303.63 billion), registering 20.3 percent growth y-o-y in October and 22.5 percent yearly growth in the first 10 months, beating forecasts.

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Exports received a boost from global demand ahead of the winter holiday season, reducing power shortages, and recovery of supply chains that were disrupted by fresh coronavirus outbreaks. China’s trade surplus of RMB 545.9 billion (approx. US$85.40 billion) in October was the highest on record – again higher than the projected US$65.55 billion. It was also a significant improvement from the US$66.76 billion surplus recorded in September.

Market sales was stable and went up, the total retail sales of consumer goods reached RMB 4,045.4 billion (approx. US$632.89 billion) in October, up 4.9 percent y-o-y, 0.5 percentage points higher than the previous month.

In general, the total retail sales of consumer goods reached RMB 35,851.1 billion (approx. US$5608.83 billion) in the first 10 months, up 14.9 percent y-o-y. This was mainly due to online consumption.

A key economic indicator, industrial output, rose by 3.5 percent y-o-y in October, beating economists’ forecasts. In the first 10 months, the total value added by industrial enterprises above the designated size went up 10.9 percent y-o-y, with an average two-year growth of 6.3 percent. Electricity shortages had been a key constraint on industrial output and eased in October, with power supply climbing 11.1 percent in October from a year earlier.

Real estate slowdown

Economic statistics are mixed on this front as most areas recovered to pre-pandemic levels, while certain areas remain vulnerable.

The investment in fixed assets grew by 0.15 percent month-on-month in October. In the first 10 months of the year, growth in fixed asset investment slowed to 6.1 percent as stricter restrictions on the real estate market continued to weigh on the industry. Of this, investment in real estate from January to October grew 7.2 percent y-o-y, 1.6 percentage points lower than the 8.8 percent growth seen from January to September 2021. The property recession continued to drag on output, with construction-related commodities like steel and iron production falling. For the fourth month in a row, new building investment fell 7.7 percent from a year ago.

In recent months, the government has enacted a slew of policies aimed at reducing income inequality, steadying corporates’ pursuit of rapid growth targets, and limiting real estate speculation, among others, to preserve the economy’s health.

Challenges plaguing the sector include the debt accumulated by developers and home buyers. China Evergrande Group, the country’s largest property developer, has been experiencing a severe liquidity crisis, which may be indicative of the sector’s status at present.

However, the slowdown in growth is conducive to stabilizing land prices and housing prices, which is believed to be helpful for the long-term development of the real estate market.

What to expect from China in Q4 2021?

On November 21, the China Macroeconomic Forum (CMF) pointed out that China’s macroeconomic recovery will continue in 2021. It is expected that the real GDP will grow by 3.9 percent in the fourth quarter, and the annual economic growth will be 8.1 percent, achieving the annual growth target of more than 6.0 percent.

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The current Chinese economy is still on the path of recovery, neither normalizing nor stopping recovery. However, it should also be noted that given international uncertainties, the scope of domestic economic recovery is still restricted.

In the short term, whether China’s economic recovery can be quickly reversed depends on the following 10 points:

• Whether the shortage of coal and electricity can be effectively solved.
• Whether the relaxation of real estate credit policy can reverse the current downward trend.
• Whether the shortage of automotive chips can be alleviated.
• Whether the divergence in commodity prices will continue.
• Whether the winter domestic pandemic situation will evolve from sporadic outbreaks to more severe clusters.
• Whether the full manifestation of inflation in Europe and the United States will cause China’s demand to continue to rise.
• Whether the withdrawal of the United States from quantitative easing will cause adjustments in China’s financial markets at the margin.
• Whether the various short-term bottlenecks faced by the global supply chain and industrial chain have been mid-term.
• Whether the macroeconomic policy has been repositioned as a whole.
• Whether the campaign style policies can avoid conflicts with each other and avoid cascading costs on businesses.

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