China’s caught up in the numbers game

Premier Li Keqiang warns of economic risks despite upbeat growth data

Quick. Quick. Slow? China is likely to face challenges in the next six months despite the economy expanding by 7.9% in the second quarter.

Slightly short of analysts’ expectations of around 8%, the GDP number was well down from the 18.3% growth between January and March of 2021.

There are also other concerns. The National Bureau of Statistics has become addicted to sugar-coated statistics when it comes to the world’s second-largest economy.

In the past three months, the recovery has shown signs of stress after the V-shaped rebound from the Covid-19 pandemic.

Industrial output and exports were the driving forces behind the bounce back. But sporadic virus outbreaks, a dip in factory activity last month, soaring raw material costs and rising unemployment among the young have caused alarm in Beijing.

“China’s 2Q GDP shows that the cyclical rebound from the pandemic has peaked. The future momentum will be more normalized,” Gary Ng, an economist at corporate and investment bank Natixis in Hong Kong, said as reported by the Reuters news agency.

“One of the concerns is if we look at household income growth, it’s still slightly lagging behind economic growth, so that may exert pressure on consumption. And for investments, there is a sharper slowdown from June data,” he added.

The numbers:

  • Gross domestic product or GDP expanded 7.9% in the second quarter compared to the same period last year.
  • But the 2020 data was distorted by the fallout from the Covid-19 pandemic.
  • As was the record 18.3% expansion in the first quarter of 2021.
  • Stripping out the effects of the Covid-19 crisis, the economy grew by 5.5% in the past three months on a two-year average.
  • China’s industrial output increased by 8.3% in June compared to the same period in 2020.
  • But data from the National Bureau of Statistics showed that was down from 8.8% in May. 
  • Retail sales also dipped from May’s figure of 12.4%.
  • June’s numbers showed growth of 12.1% compared to the same period last year.
  • As for urban unemployment, it came in at the usual 5% mark with the 16 to 24 age category jumping to 15.4% year-on-year.

Source: National Bureau of Statistics of China

Big picture: “The domestic and external environments remain complicated and complex. There are relatively many factors creating uncertainty and instability. We must respond well to cyclical risks that could occur,” Premier Li Keqiang told economists, business leaders and senior government officials 24 hours before the figures were released.

Gusts of reality: “Headwinds to growth are likely to intensify during the second half of the year,” Julian Evans-Pritchard, a senior China economist at Capital Economics, said in a note.

Delve deeper: Unemployment amongst the young continues to rise. There is also apprehension about the “hidden” jobless “problem” known as the “underemployed.” Plus, there are zero figures for the migrant workforce, which is the backbone of e-commerce, construction, manufacturing and key service sectors.

Statistical sham: In an April report released by the London-based Fathom Consulting, economists stated that China’s figure for the unemployed and underemployed was around 17%. Seven years ago, it was roughly 5%.

Hidden dangers: “It is a reflection of the inefficiencies in China’s economy … China has a substantial hidden under-employment problem,” Joanna Davies, an economist at Fathom Consulting said, adding that workers in state-run companies may be officially employed but are “not productive” and their jobs provide “little or no economic return.”

China Factor comment: At first glance, China’s numbers look enticing compared to other major economies still struggling with the SARS-CoV-2 virus. But dig deeper and cracks appear. The trillion-dollar question is will they widen in the months ahead?