China’s 3rd Quarter GDP Grew by 4.9%?

Recovery is underway as China’s 3rd quarter GDP registered a growth of 4.9%. Last quarter, the country’s economy grew by 3.2%. In contrast, China’s GDP shrank by 6.8% during the first quarter, its first contraction since 1976. Despite the impressive growth for pandemic standards, the GDP is less than the expected 5.5% rate.

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The International Monetary Fund expects the Chinese economy to expand by 1.9% by year’s end. The agency believes that only China can grow among the world’s major economies in 2020. Meanwhile, the United States expects to contract by 4.3% while Europe sees a decline of 8.3%.  The IMF also supplied the data for the two areas. In contrast, China marked its first positive growth this year, showing a 0.7% increase from a year earlier.

Figures released by the National Bureau of Statistics showed that industrial production rose 6.9% in September. The rate exceeded the Bloomberg median forecast of 5.8%. In August, the rate was 5.6% in August. China’s jobless rate also went down 5.4% in September. This is lower than August’s 5.4% rate and Beijing’s projected 6%.

Three Stage Management

China managed to turn their fortunes around through three stages. The government shut down all economic activity from January until March. By April, Beijing started up its factories, beginning with medical equipment and supplies. Industries began churning out face masks and sterilizers to supply the rest of the world. At the same time, they began producing computers and other work from home equipment.

By the third quarter, authorities focused on reopening the local market. With coronavirus controlled within its borders, citizens started coming out of their homes. Purchases started picking up as well. China reported retail sales growth of 3.3% in September, almost double the 1.7% projection for the period.

China Buys American

American consumer companies credited China with saving their businesses. Domino’s Pizza Inc. reported strong Chinese retail sales growth in the third quarter. This allowed the pizza chain to remain afloat despite losing 300 of its global stores. CEO Richard Allison called their China experience “a terrific success story in 2020.” Allison predicted that China will soon become Domino’s largest non-US market.

Spice company McCormick & Co.also believes China’s 3rd quarter sales saved them. Global sales fell 1% between June to August as demand fell worldwide. In contrast, demand for McCormick products remained strong in China. CEO Lawrence Kurzius said that traffic at fast-food restaurants “returned to near-normal levels.”

Consumer Spending Still Below Normal

The recent National Day holiday boosted consumer spending throughout the country. 637 million Chinese traveled within its borders and spent $69 billion dollars. The National Day celebrations took eight days this year, but spending is only 70% of last year’s total. 2019's celebrations were a day shorter at seven days.

A restricted box office managed $580 million in receipts despite limited runs. This paled in comparison to 2019’s total receipts at $750 million.

Analysts expected much more spending than reported. With most citizens stuck at home for half the year, economists hoped for a lot of pent-up demand. As overseas travel remains on hold, most expected to spend more at home. Betty Wang, Senior China economist of ANZ, thinks the worst isn't over.  “The rebound is lower than expected considering the sharp drop in overseas travel. It is too early to be complacent,” she said.

Still Faster Than Any Other Country

Julian Evans-Pritchard of Capital Economics thinks the self-sustained model helped China recover. He noted that “China's economy continued its rapid rebound last quarter, with the recovery broadening out and becoming less reliant on investment-led stimulus.”

China also benefited from faster recovery from coronavirus. Strict enforcement of lockdown and quarantine rules helped contain the virus. Beijing also spent hundreds of billions of dollars on major infrastructure projects. The public works aimed to fuel economic growth. This led to a 0.7% economic growth through the first nine months of this year. And it seems that China is still warming up. Evans-Pritchard noted that “What's more, the monthly data show that growth was still accelerating heading into Q4.”

The IMF predicted that China’s economy would grow by 1.9% in 2020, an upgrade of 0.9% from its June forecast. China is the only G20 economy expected to register positive growth. For the rest of the world, the IMF estimates that the global economy will contract by 4.4%

Watch this as Bloomberg Markets and Finance reports on China’s GDP performance in the 3rd quarter, where it shows a broadening recovery from the pandemic and accelerated growth:

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As the world’s second-largest economy, China is in a good position to initiate global recovery. The US would do well to follow suit. But with a projected deficit this quarter, how can the US catch up? Let us know what you think and share your thoughts below.