The Chinese Recovery

China is an upper-middle-income country and the world’s second largest economy. But its per capita income is still only about a quarter of that of high-income countries, and about 373 million Chinese are living below the upper-middle-income poverty line of US$5.50 a day. China also lags in labour productivity and human capital.  Income inequality has improved over the last decade but remains relatively high.

China’s high growth based on resource-intensive manufacturing, exports, and low-paid labour has largely reached its limits and has led to economic, social, and environmental imbalances. Reducing these imbalances requires shifts in the structure of the economy from low-end manufacturing to higher-end manufacturing and services, and from investment to consumption.

“The economic recovery will be much more uneven compared to what we thought a few weeks ago,” said Hao Zhou, an economist at Commerzbank in Singapore. “Things will be much more complicated.” 

China also produced a rise in industrial production, car sales and spending on services in May, after the virus was brought under control nationwide, boosting hopes of a quick economic rebound. But signs that Covid-19 is re-emerging could undermine that narrative, say economists, if it means people are more hesitant to visit restaurants and cinemas or take public transport. Some point to a steep drop in passenger numbers on Beijing’s train network in recent days as evidence of how quickly outbreaks can hit economic activity. 

Chinese industrial output last month grew at its strongest rate since the virus was detected in December. But shop sales are slow as consumers remain cautious.

China has largely gotten COVID-19 under control and the economy has mostly re-opened, at a time when much of the rest of the world is facing the worst of the virus. While many governments are in crisis management, the Chinese government is now looking ahead towards putting the economy back on track for the rest of 2020 and beyond.

Due to the size of China’s economy, its success will be instrumental in revitalising the global economy as a whole – and with the virus under control and ambitious economic policies set to be released, China appears well-positioned to accomplish just that.


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