China’s Economy Is Recovering Though Unevenly: Forbes China Forum

China’s economic recovery from the COVID-19 shock in early 2020 is continuing in the second half of the year, albeit unevenly, a senior economist told the recent U.S.-China Business Forum organized by Forbes China.

“It's an uneven recovery” being helped by a combination of modestly lose monetary policy, financial industry growth, and improved consumer demand in relatively well-off first-tier cities such as Beijing and Shanghai, said Hao Hong, head of research and managing director at Hong Kong-headquartered BOCOM International, part of China’s Bank of Communications. “China was the first in to the virus outbreak and also the first to have recovered,” he noted at the online forum held on Aug. 26

In the latest sign of overall economic improvement, an auto industry group said on Friday wholesale purchases in August rose by 11% from a year earlier, the best gain in more than two years. GDP gained 3.2% in the second quarter of the year from a year earlier, compared with a 6.8% drop in the first quarter.

Experience from the last economic downturn during the global financial crisis in 2008 is helping to guide monetary policy this year, Hong said. Large stimulus spending at that time led to “tremendous excess liquidity that we still trying to digest to this day,” Hong said. “China learned a huge lesson from that.”

Today’s moves are “quite strong but very measured comparing with the other central banks” in the U.S. and Europe, he said. China has lowered reserve requirements, making it easier for banks to lend, and nudged lending rates lower through other means. As a result, interest rates have been coming down since the second quarter this year and credit demand has increased, he said.

Eased credit and a flurry of successful local stocks listings from tech companies – through IPOs or secondary listings by China returnees from the U.S. – are helping the financial services industry to boom, especially in so-called first-tier cities such as Shanghai.  Consumption is also benefitting in those areas, Hong said. Another big growth area: e-commerce.

Recovery is slower in the lower tier cities where SMEs play a big role, however. “Smaller business is still struggling – it’s more or less the same as the other parts of the world” because those companies find it difficult to get access to bank credits, Hong said. SME’s are particularly important for employment in China, accounting for up 80% of jobs.

That uneven recovery landscape, along with question marks about the international outlook, forms the backdrop for the new “double circulation” policy launched in the second half. The goal is “really is to focus on improving domestic consumption,” Hong said.  That makes sense because of likely overall pressure on global supply chains and foreign demand in light of escalating rivalry between the U.S. and China, he said.  It will also give policy makers room to help cities where income is already relatively low.

“So going into the second half of the year, hopefully not only the bigger SOEs will be performing well and not only the bigger, more successful Chinese online tech giants will be flourishing, but also the smaller SMEs can come back,” he said.

With China’s overall outlook still promising, Hong doesn’t expect multinationals to pull out entirely – a view that was echoed by other forum speakers (see related post here).  China’s domestic market will be “more important for Chinese companies and even for U.S. companies,” he said, citing Tesla. China, he said, is “becoming a global consumption market that many global conglomerates want to be in.”

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IMAX Back On Track In China: Forbes China Forum

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