By Jonathan Cheng
BEIJING -- China reported a robust rebound in the second quarter
of the year, avoiding a recession and putting the world's
second-largest economy back on a growth trajectory even as other
countries struggle with the impact of the coronavirus pandemic.
The question now is whether China has seen the best of the
recovery, as Beijing faces a daunting set of challenges through the
end of the year: A coronavirus resurgence in the U.S. that could
slow the global economy, rising tensions with Washington and
widespread flooding and diminished buying power at home.
On Thursday, China said its economy grew by 3.2% in the three
months ended June 30, compared with the same period a year earlier.
The figure topped economists' forecasts, and served as evidence
that Beijing's aggressive efforts to rein in the pandemic at home
-- though agonizing in the short term -- has begun to restore
longer-term business confidence.
"China was first in and first out: The worst period was the
first quarter, and the strongest rebound happened in the second
quarter," said Zhu Haibin, the Hong Kong-based chief China
economist at J.P. Morgan. Going forward, he said, "the rebound will
continue -- but the momentum will be much weaker."
The decision by Beijing to essentially frontload the pain by
putting a stop to business activity in late January sent shockwaves
through the domestic economy. In the first three months of the
year, China's economy contracted by 6.8%, marking the worst quarter
since the mid-1970s and pushing Beijing policy makers in May to
scrap their annual gross domestic product growth target.
That gamble is beginning to pay off. Even as the U.S. struggles,
China's strong second quarter has forestalled a technical
recession, generally defined as two consecutive quarters of GDP
contraction. The sequential 11.5% growth in second-quarter GDP from
the first quarter reduces the overall magnitude of the contraction
in the first half of the year to just 1.6%. Industrial production
increased 4.8% in June from a year earlier, an improvement on the
previous month's 4.4% year-on-year gain.
Chinese exports in particular have been a bright spot, even as
the rest of the world struggles with the pandemic. Because China
had its factories up and running before other exporting nations,
Chinese businesses were able to fill gaps in global supply and
expand its share of global exports.
For foreign companies with operations inside and outside of
China, the contrast has been striking.
WD-40 Co., the San Diego-based maker of the namesake lubricant,
said its China sales in the most recent quarter rose 26% from a
year earlier -- as operations in China returned to normal -- while
total worldwide sales tumbled 14%.
Anders Nyström, CEO of Bulten AB, a Swedish supplier of
automotive fasteners, told investors last week that production
volumes at its China factories "are now essentially back to
pre-pandemic levels," even as its U.S. and European plants struggle
to come back online after coming to a virtual standstill at the
beginning of the quarter.
Despite the positive signals, economists see plenty of causes
for concern in the data. While factories are humming again and
investment dollars are flowing into the economy, Chinese consumers
-- a far more important component of China's economy than in
previous downturns -- have so far kept their wallets closed.
Retail sales have fallen each month this year, and in June they
dropped 1.8% from a year earlier -- disappointing economists'
projections for a return to positive growth -- a reflection of
lingering concerns about public health and lost income during the
worst of the lockdown between January and April.
Weeks of widespread flooding in many parts of central and
southern China have compounded the misery for hundreds of millions
of ordinary Chinese. The risk of fresh spikes in coronavirus cases
also lingers, following recent resurgences in Beijing and Hong
Kong. Restaurants, hotels and other service-sector businesses
across the country have found it especially difficult to bounce
back, Liu Aihua, a spokeswoman for China's National Bureau of
Statistics, said Thursday.
Real disposable income for the average Chinese citizen fell by
1.3% in the first half of the year compared to a year earlier, data
from the statistics bureau showed Thursday, after a 5.8% increase
in 2019. As a result, real consumption per capita declined 9.3% on
year in the first six months, more than reversing last year's 5.5%
increase.
And though China's headline jobless figure, the urban
unemployment rate, fell to 5.7% in June from 5.9% in May, the labor
market remains a major source of concern for China's leaders. The
unemployment rate among college graduates aged between 20 and 24
climbed to a new record high of 19.3% in June, Ms. Liu said.
The silver lining is that, as the recovery stabilizes and
consumers feel more comfortable going out again, "there is room for
recovery on domestic service and retail sales," said J.P. Morgan's
Mr. Zhu, pointing in particular to higher-income families with
ample savings.
In one closely-watched sign of improvement, Chinese regulators
said Thursday that they would begin allowing movie theaters in
lower-risk areas to begin reopening, with restrictions, after
months of shutdowns.
The biggest risk to China's economic outlook, however, could be
the U.S., where senior officials and lawmakers from both major
parties are ramping up rhetoric against China and imposing
sanctions targeting Chinese entities ahead of November's
presidential election.
The U.S. is also struggling with a record surge in coronavirus
cases in several of its biggest states, prolonging the economic
damage in the world's largest economy and diminishing U.S. demand
for Chinese goods.
Lian Ping, chief economist at Zhixin Investment Research
Institute, lists external pressures and the U.S. economy as the
biggest challenges to China's recovery during the second half of
the year. "The stability of the U.S. economy leaves a big question
mark over China's exports," Mr. Lian said.
Zhang Yong, who runs a factory that has for more than a decade
exported farming and gardening tools to U.S. big-box retailers Home
Depot Inc. and Lowe's Cos. Inc., has felt little pain through the
two-year-long U.S.-China trade war.
But this year's pandemic has been different. Mr. Zhang, 41, said
orders from the U.S. have dropped by roughly 20% this year from the
same period last year, with little sign of a pickup even after some
parts of the U.S. began reopening in June.
"The outbreaks in the U.S. have hurt consumer demand. It really
worries me," said Mr. Zhang, whose factory in the northern Chinese
city of Tangshan employs nearly 200 people. "I feel responsible for
my workers but I don't know how long I can hang on like this."
--Grace Zhu,
Bingyan Wang
, Liyan Qi contributed to this article.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
(END) Dow Jones Newswires
July 16, 2020 08:22 ET (12:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.