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Shape of Economy in the Time of Pandemic

Aug 20-2022   



In a recent commentary, Prof. Lu Feng of the NSD and his co-author Ren Hui presented a summary of the composite characteristics of the Chinese economy since the outbreak of the pandemic, which they found are wildly different from its previous features.

 

To begin with, the economy has experienced wider fluctuations as well as slower growth. Over the last two years and a half, the standard deviation of GDP quarterly growth rate has expanded to 2.53 times that of the pre-pandemic 28 years and 6.27 times that of the pre-pandemic nine years, pointing to the widening fluctuations. In terms of growth rate, the Chinese economy expanded by 5% annually in 2020 and 2021, a high figure among major economies but a considerable decline from the pre-pandemic 6-7%. This year, the GDP is expected to expand by less than 5%.

 

Another feature is the surging contribution of the Secondary Industry to economic growth and, in stark contrast, the weakening role of the Tertiary Industry. The Secondary Industry contributed 43.3% of economic growth in 2020, a big jump from 32.6% in 2019. Though dropping to 38.2% in 2021, the figure quickly bounced back to 48.7% in the first half of 2022, outnumbering the Tertiary Industry.

 

The economy has also been characterized by the contrast between strong recovery in production and supply and foot-dragging in demand and consumption. In fact, retail sales only grew at 35% of the rate of industrial output during the pandemic. Parallelly, the consumer price index (CPI) and the purchasing managers’ index (PMI) have gone in reversed directions, with the former dipping from its pre-pandemic ten-year average of around 2.6% to 1.7% and the latter shooting up from 1% to 5.22%.

 

Another salient feature is the strong growth in trade, especially product export. Despite its impetus for economic growth and job creation, the export boom has come with some unfavorable changes in trade conditions and showed an over-reliance on external demand, thus indicating an upcoming need for adjustment. Since May 2020, as the world economy started to recover, the trade conditions have showed signs of negativity for China and caused it an economic welfare loss of 1.7 trillion yuan in the period of 2021 to May 2022, according to estimates by Prof. Lu and Ren Hui.

 

The fifth characteristic of the Chinese economy is the fast expansion of SOEs and the slow growth of private firms. In 2021, SOEs as a whole pulled in 30.1% more profit year on year. Private enterprises, despite managing breakthroughs in certain industries such as new-energy vehicles and lithium battery, have had a hard time during the pandemic and seen a sharp decrease in investment. According to CB Insights, China saw the creation of eight more unicorns from January to July, 2022, only half that of India.

 

One more aspect of the economy is the fluctuations in urban unemployment rate and the enormous rise in the youth jobless rate. In the shadow of slower economic growth and listless recovery of the Tertiary Industry, job creation has also been dented by the strict regulatory efforts concerning a number of industries (the Internet, real estate, and after-school tuition) and the pandemic control measures in Shanghai, Shenzhen and Beijing (all job hubs).

 

Shape of Economy in the Time of Pandemic

Aug 20-2022   



In a recent commentary, Prof. Lu Feng of the NSD and his co-author Ren Hui presented a summary of the composite characteristics of the Chinese economy since the outbreak of the pandemic, which they found are wildly different from its previous features.

 

To begin with, the economy has experienced wider fluctuations as well as slower growth. Over the last two years and a half, the standard deviation of GDP quarterly growth rate has expanded to 2.53 times that of the pre-pandemic 28 years and 6.27 times that of the pre-pandemic nine years, pointing to the widening fluctuations. In terms of growth rate, the Chinese economy expanded by 5% annually in 2020 and 2021, a high figure among major economies but a considerable decline from the pre-pandemic 6-7%. This year, the GDP is expected to expand by less than 5%.

 

Another feature is the surging contribution of the Secondary Industry to economic growth and, in stark contrast, the weakening role of the Tertiary Industry. The Secondary Industry contributed 43.3% of economic growth in 2020, a big jump from 32.6% in 2019. Though dropping to 38.2% in 2021, the figure quickly bounced back to 48.7% in the first half of 2022, outnumbering the Tertiary Industry.

 

The economy has also been characterized by the contrast between strong recovery in production and supply and foot-dragging in demand and consumption. In fact, retail sales only grew at 35% of the rate of industrial output during the pandemic. Parallelly, the consumer price index (CPI) and the purchasing managers’ index (PMI) have gone in reversed directions, with the former dipping from its pre-pandemic ten-year average of around 2.6% to 1.7% and the latter shooting up from 1% to 5.22%.

 

Another salient feature is the strong growth in trade, especially product export. Despite its impetus for economic growth and job creation, the export boom has come with some unfavorable changes in trade conditions and showed an over-reliance on external demand, thus indicating an upcoming need for adjustment. Since May 2020, as the world economy started to recover, the trade conditions have showed signs of negativity for China and caused it an economic welfare loss of 1.7 trillion yuan in the period of 2021 to May 2022, according to estimates by Prof. Lu and Ren Hui.

 

The fifth characteristic of the Chinese economy is the fast expansion of SOEs and the slow growth of private firms. In 2021, SOEs as a whole pulled in 30.1% more profit year on year. Private enterprises, despite managing breakthroughs in certain industries such as new-energy vehicles and lithium battery, have had a hard time during the pandemic and seen a sharp decrease in investment. According to CB Insights, China saw the creation of eight more unicorns from January to July, 2022, only half that of India.

 

One more aspect of the economy is the fluctuations in urban unemployment rate and the enormous rise in the youth jobless rate. In the shadow of slower economic growth and listless recovery of the Tertiary Industry, job creation has also been dented by the strict regulatory efforts concerning a number of industries (the Internet, real estate, and after-school tuition) and the pandemic control measures in Shanghai, Shenzhen and Beijing (all job hubs).