Can China join the US as engine of global recovery? | Business | Economy and finance news from a German perspective | DW | 16.04.2021

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Can China join the US as engine of global recovery?

In the first quarter of 2021, China sees its biggest increase in economic growth since records began. But a closer look at the figures suggests caution is warranted.

A picture showing containers and cranes at the foreign trade container terminal of Qingdao port in China's Shandong province,

The clouds over China's economic development appear to be lifting

In a world starved of good news, a record rise in Chinese economic growth data comes as a welcome respite from COVID-19 uncertainty and gloom.

China's gross domestic product (GDP) expanded by 18.3% in the first quarter of 2021, compared with the same period last year, marking the highest increase since China began to publish quarterly data in 1992. The jump was way ahead of what analysts had expected, and markets responded in kind, with European stocks reaching record highs.

China's exports soared, retail sales were up by a third while fixed-asset investment surged by nearly 26%. Industrial activity rose by a quarter, on the back of the boom in the manufacture of electric vehicles, industrial robots and integrated circuits.

Figures from German carmaker Volkswagen (VW) released at the same time illustrate just how important China is to Europe's biggest economy.

Volkswagens crossover utility vehicle shown to an audience of a car exhibition in Shanghai, China

In the first quarter, VW sold two-thirds as many cars in China as it did a year ago

A more moderate picture

China, the world's second-largest economy was the only major one to grow at all in 2020. To get a clearer picture of the Chinese economy, we need to look back at last year's figures. The Chinese economy contracted a staggering 6.8% in the first quarter of 2020 on the impact of the coronavirus.

In some respects, the latest Chinese data are indicative of where we are now, of the new normal foisted on us by the pandemic.

Year-on-year comparisons mainly serve to give insights into how recovery from the pandemic is progressing or not. But in terms of gauging economic trends, they are deceptive. A more useful indicator in these unpredictable times is quarterly comparisons.

This paints a more moderate picture. China's economy grew 2.6% in the fourth quarter, but this fell back to 0.6% in the first three months of 2021. The services sector, often hailed as the future of the Chinese economy, appears to have contracted in the quarter.

Global recovery a dampener

Even China's National Bureau of Statistics warns against irrational exuberance, saying the global spread of COVID-19 means the recovery had "yet to be consolidated."

There are looming fears of rising inflation driven by higher input prices and US President Joe Biden's $1.9 trillion stimulus package. Prices at the factory gates leapt 4.4%, something that is hitting private firms hard.

NBS spokeswoman Lin Aihua said the services sector and small companies were still facing challenges.

Growing political tensions between China and the West over forced labor in Xinjiang province and the crackdown on democracy in Hong Kong are translating into a thornier investment environment.

China's plan to keep its economy growing

The European Union's Comprehensive Agreement on Investment (CAI) with China has been called into question after sanctions were imposed on Chinese officials in Xinjiang, and China responded in kind.

And the coronavirus is the most uncertain aspect of all. Germany is still averaging around 16,500 new COVID-19 cases a week, and the third wave of infections appears to be worsening. Even in the United States, despite substantial progress in vaccinations, it is still averaging around 69,000 cases a day.

Things are generally back to normal in China after the pandemic and economists expect Chinese growth to decelerate in the coming quarters. The next challenge is getting the rest of the world back on track.