While much of the world struggles with the resurgent coronavirus and the economic pain that comes with it, China has recorded a positive growth rate for 2020, likely making it the only large economy to do so.
But with many of its export markets now facing renewed restrictions as their COVID-19 cases rise, some analysts have predicted China may not be able to sustain the rapid rebound it posted late last year.
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For the whole of 2020, gross domestic product (GDP) expanded by 2.3 percent compared with 2019, according to figures published on Monday by China’s National Bureau of Statistics (NBS), faster than the 1.9 percent growth rate projected by the International Monetary Fund in its October 2020 forecast.
After the virus emerged in the central Chinese city of Wuhan in late 2019, it quickly spread, forcing authorities to lock down much of the country and its economy.
GDP shrank by 6.8 percent in the first quarter of last year compared with the same period in 2019 but, as lockdowns were lifted, it rebounded by 3.2 percent in the second quarter. It accelerated to 4.9 percent and then 6.5 percent in the third and fourth quarters of 2020 respectively.
The fourth-quarter growth rate exceeded the median forecast of 6.1 percent in a poll of economists carried out by the Reuters news agency.
“The strengthening momentum of China’s economic rebound during [the fourth quarter of] 2020 reflected improving private consumption expenditure, as well as buoyant net exports,” Rajiv Biswas, chief Asia-Pacific economist at research firm IHS Markit, told Al Jazeera in an email.
A combination of improving private consumption and growing overseas demand drove China’s growth rate higher in the fourth quarter, analysts said.
“China’s exports of medical equipment and electronics have grown very strongly in recent months, boosted by ongoing pandemic-related demand for [personal protective] equipment and computers and mobile devices for working from home,” Biswas said.
Despite enduring a trade war with the United States and broken supply chains caused by coronavirus lockdowns, China’s exports grew by 4 percent in 2020, according to NBS figures.
Some analysts have questioned the veracity of Chinese economic data, but research firm Capital Economics said the latest growth figures appear to accurately reflect a sharp economic rebound in the fourth quarter.
“Our in-house measure, the China Activity Proxy (CAP), also points to a marked pick-up in growth last quarter despite showing a deeper downturn earlier in the year,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note sent to Al Jazeera.
While strong consumer demand was a pillar of China’s rebound early last year, looking ahead, there are signs that it may be flagging somewhat.
Retail sales grew by a relatively modest 4.6 percent in December compared to the same month in 2019. That was slower than the 5-percent growth rate in November and lower than analysts had forecast.
“Momentum in retail sales growth slowed from November, showing household demand continued to face pressure and lagged behind in the recovery. For the whole year, retail sales contracted 3.9 percent [year-on-year],” Jingyang Chen, Greater China economist at banking giant HSBC, said in a note sent to Al Jazeera.
“Retail sales and client-facing services sectors will feel more pressure as tight virus-containment measures have been re-implemented in some northern provinces, and stricter government guidance to reduce travelling and public gathering have also been issued in major cities and provinces in China,” Chen wrote.
New coronavirus cases in China hit a 10-month high last week, prompting the lockdown of 28 million people in two provinces, disrupting logistics and industrial activity, with millions expected to scrap holiday travel plans.
Slowing consumer demand could pose a quandary for Chinese policymakers, who have been trying to reduce China’s reliance on exports while encouraging domestic spending and investment to spur growth on.
Looking further out, some analysts are optimistic that vaccines being rolled out in developed countries will help to restore consumer demand there, potentially giving Chinese factories an export-driven boost.
Economists Kevin Lai and Eileen Lin at Daiwa Capital Markets in Hong Kong say they see China’s economy growing by 7.5 percent in 2021, probably far outpacing its global peers.
But that robust export-led growth rate may hide some underlying problems at home.
“We expect this growth to remain unbalanced, with gains coming from exports and industries, but not filtering down to jobs and household incomes,” Daiwa’s economists said in a note sent to Al Jazeera.
While most of the jobs lost during the depths of the pandemic have returned to pre-outbreak levels, with unemployment at 5.2 percent, according to HSBC, wages have not.
“Income growth has yet to fully reach pre-pandemic levels of growth as we estimate nominal per capita disposable income reached only 7.1 percent growth in [the fourth quarter of] 2020 compared with 8.9 percent for 2019,” said HSBC’s Chen.
An even deeper source of concern for investors could be rising levels of unsustainable debt among large state-owned enterprises (SOEs) and the unwillingness, or inability, of provincial authorities to bail them out.
According to research firm Enodo Economics, nine SOEs defaulted on bonds they issued last year denominated in Chinese yuan. Among them was Huachen Automotive Group Holdings Co, the parent company of Brilliance Auto Group Holdings Co, German car giant BMW’s China joint venture partner.
The total value of those nine defaults surged to about 49 billion Chinese yuan ($7.5bn) from 12 billion yuan ($1.8bn) in 2019, Enodo said in a note sent to Al Jazeera.
“Local government finances nationwide are overstretched and show little sign of improving,” Enodo’s Dinny McMahon said.
“The defaults have generated much debate about whether this marks the end of local governments’ implicit guarantee of their SOEs’ bonds. Beijing has been gradually moving in this direction of late and has become increasingly tolerant of defaults. But at least for the time being, even though SOE defaults will likely increase, local authorities will continue to seek to bail out their firms whenever necessary,” McMahon added.