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'Retaliatory growth' could be new thing in China

By Liao Qun | China Daily | Updated: 2021-07-26 10:33


Newly released data has shown that the strength of China's economic recovery in the first half has laid a good foundation for full-year performance.

It is worth noticing that the COVID-19 pandemic is the most important factor impacting economic growth for both 2020 and 2021.Last year, due to COVID-19 and the deep recession of the global economy, China's economic growth slowed sharply. Economic prospects for this year also primarily depend on how the COVID-19 situation evolves.

The good news is that with wide and speedy inoculations via vaccines, the COVID-19 situation is being alleviated around the world. And with fast vaccine inoculations in China, China is likely to take the lead in ending the global pandemic.

This improvement will help lay a solid foundation for most economies around the world, including China. Last year, most economies were hit with a major blow. But this year, most economies are experiencing an economic rebound. It is only the intensity of such rebounds that differs.

Developed economies are seeing strong rebounds because of the fast rollout of vaccines while most developing economies are lagging behind in terms of economic recovery because of slow inoculation speeds. China is also taking the lead in economic recovery, which represents the first theme of the 2021 global economy.

Due to last year's low base effect phenomenon, growth for most countries this year will be stronger during the first few months and the rate will trend lower toward the end of the year. This is the second feature of this year's economic growth.

Comparing with other countries, China has its own features for growth this year. That is, China's growth will be "retaliatory".

"Retaliatory growth" occurs when growth rates not only return to or exceed pre-COVID-19 or current potential levels, but they also make up the growth loss caused by COVID-19.

Currently, the potential growth level for the Chinese economy ranges between 5.5 percent and 6 percent, which is also the pre-pandemic growth level. This means that the growth loss last year was at about 3.2 percentage points to 3.7 percentage points. If the growth rate for this year reaches 8.7 percent or more, it will be retaliatory growth. Or in terms of the two-year average growth rate for 2020 and 2021, exceeding the lower limit of 5.5 percent is retaliatory growth. Essentially, when it comes to measuring whether we are witnessing retaliatory or not, the average growth rate for both 2020 and 2021 is a better indicator to use and understand.

Therefore, will China be able to reach a growth rate of above 8.7 percent and a two-year average growth rate of 5.5 percent for 2020 and 2021? Readings from economic activities for the first half show that such a growth rate is quite likely to be achieved.

China's GDP grew by 18.3 percent year-on-year in the first quarter, a speed rarely seen over the past 40 years and well beyond market expectations. This, of course, is attributable to the low base effect for the first quarter of 2020. Yet this year's first quarter growth came in at 10.3 percent even when compared with the 2019 level, making the two-year average growth speed at 5 percent. This is close to the "above 5.5 percent goal", which can be seen as "retaliatory growth".

The economy grew 7.9 percent in the second quarter, a figure that also somewhat disappointed the market. Yet this does not mean the recovery is losing momentum because last year's base for the second quarter reached 3.2 percent, trending upward. Using a two-year average, the Chinese economy in the second quarter came in at 5.5 percent, which is in line with our abovementioned "retaliatory growth". Both of these have laid a solid foundation for "retaliatory growth" of about 8.7 percent for the whole year.

The other question is whether the economy can achieve 5.4 percent growth or above for the second half this year.

First, it will depend on the COVID-19 situation and how much the world recovers from it. If things go as planned with wide vaccine rollouts, COVID-19 will be virtually vanquished and China will be among the first countries to achieve this. Against such a backdrop, both the Chinese and global economies will evince stronger recovery momentum.

On the macroeconomic policy front, unconventional economic policies designed to cope with COVID-19 will be gradually phased out. But the process will not be an immediate one. Just like the recent reduction of the reserve requirement ratio for financial institutions announced by the People's Bank of China, the impact of policy tools will be better leveraged. Overall macro policies will still be conducive to growth.

With COVID-19 containment measures being further eased, people's appetite for consumption will be whetted. Therefore, household consumption, particularly services, will recover more rapidly. Meanwhile, investment in the second quarter stabilized. With growth and pandemic prospects getting clearer, investment in manufacturing and services is likely to be scaled up. Regarding exports, the prospect that countries are recovering from the COVID-19 situation globally will create conducive conditions for China's export growth. The International Monetary Fund has revised up its projection on global growth from 5.5 percent to 6 percent, indicating China's export recovery will thus also be strong.

To sum up, we project China's economy to grow by 5.9 percent in the second and 8.9 percent for the whole year. The two-year average growth rate for 2020 and 2021 will be 5.6 percent, all reaching above a "retaliatory growth "level.

The author is the chief economist at Chongyang Institute for Financial Studies at Renmin University of China.

The views don't necessarily reflect those of China Daily.

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