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Here are some findings from our close look into China’s 2.3% economic growth in 2020, including some of the data on imbalances. The most important point is that getting Covid-19 under control means economies can return to pre-pandemic levels fast (1/x) https://www.bloomberg.com/news/articles/2021-01-18/china-s-strong-growth-masks-unbalanced-recovery-as-incomes-lag
Second, income inequality (by a widely used measure) didn’t leap due to the pandemic, but remained high in 2020. The top 20% in China earned over 10 times as much as the poorest 20%. That is similar to Mexico, and compares to about 4-5x in western Europe, and 7x in the US.
Third, consumer spending was the weakest part of the economy in 2020 as Beijing provided little new support to households. Overall consumer spending fell about 4%: similar to the US, where business closures have been worse but government support stronger.
Officials said that consumption expenditure subtracted 0.5 percentage points from GDP growth in 2020, meaning investment and exports accounted for all of the economic expansion. Sounds like that would mean a big increase in “imbalances”...
But the full-year figures obscure how consumer spending returned to growth by May, once the virus was under control, and by the final quarter retail sales and even restaurant spending was growing again at quite a rapid pace
As consumption now accounts for the bulk of demand in China’s economy, it would take a bigger downturn to reverse gains made by consumption in recent years. Partly due to that and strong government spending on goods and services, the economy didn’t rebalance that much.
Finally, industrial production expanded faster than services, but not by much: 2.6% versus 2.1%. That suggests services shrunk slightly as a proportion of output, but still account for the largest part of it. Some service sectors such as IT performed very well.
In all, following a dollop of state-stimulus to get the economy going again, at end of 2020 China still has an economy consisting mainly of consumption spending (including government consumption) and services, same as in 2019. Not a massive shift.
Looking ahead, consumption growth remains below pre-pandemic levels. That reflects a still weak job market, and the legacy of scarring from the first quarter. The number of migrant workers fell by 5.2 million, suggesting many gave up on urban jobs.
Xi Jinping has signaled that addressing inequality will be a priority in coming years, as part of a plan to create a more consumer-led economy. But the track record is not great, as little progress has been made since 2015 https://www.bloomberg.com/news/articles/2020-12-23/china-looks-at-cutting-inequality-in-order-to-boost-the-economy
Service sector activity grew 7.7% in December, the third month in a row that it has outpaced industrial output, so the production-heaviness of recovery seems to be fading (/ends)
