Revenge Spending Likely in 4th Quarter

Nov 12-2020   

Moving out of the doom and gloom of the pandemic, spending across the society has seen a quick recovery in China in the second half of the year. An explosion in spending – in other words, revenge spending – might happen in the fourth quarter, says Prof. Yu Miaojie of the NSD in his recent media commentary. He’s a renowned scholar in the fields of international trade, international economics, and development economics.

The overall health of the Chinese economy has improved as the GDP grew by 4.9% in the third quarter. For the whole year, Prof. Yu estimates a growth rate of 2.3-2.5%, higher than the 1.9% forecast by the IMF. Pandemic control measures are unlikely to impede long-term economic development, he says, thanks to the ample experiences that have been accumulated.

China has implemented active fiscal policies to fight recession and depression and deployed prudent monetary policies to protect market entities and jobs. Such measures have enabled China to be one of the countries to get its economy out of the shackles of the economy and offer some lessons for the other developing countries.

Though consumption has gone up, the domestic demand still isn’t powerful enough to drive the economy on its own. Consumption is expected to account for 60% of economic growth in a fairly long period of time. To increase the share, permanent income increase must be achieved, e.g. through reduction in taxes and safeguarding of employment. Migrant workers are the hardest hit under the pandemic and deserve extra assistance, he says.

On the trade side, Prof. Yu expects the annual trade surplus to reach 2.6 trillion yuan in 2020 due to rebound in export and limited import growth. Both export and import are bound to rise and China will seek to balance the two.