China’s factories and services activity, according to official Chinese statistics released this week, continued to expand in December, supported by pent-up demand and strong export demand, fueling Beijing’s recovery from the shock. of the coronavirus. Its economy is expected to grow by around 2% for the year, reflecting a recovery that is beating other major economies that are still struggling to contain infections.
But a business survey released two days before the new official statistics were released appeared to take away the shine from official statistics indicating a more subdued picture of the economic recovery. He pointed to weak consumer spending and obstacles to Beijing’s efforts to encourage more lending to small businesses in the private sector.
More importantly, data from China Beige Book International, a provider of independent economic data, underscores that consumer-oriented industries continue to lag behind. Growth in the service sector, for example, was driven by telecommunications, shipping and financial services companies. However, consumer-oriented businesses, such as restaurants and travel, are still lagging behind.
People haven’t started going out to eat at chain restaurants. The travel and hospitality sector also recorded low incomes.
There was also a sharp decline in sales growth for luxury goods, food and clothing in the fourth quarter, also squeezing margins and hiring.
The China Beige Book survey, based on 3,300 interviews with business leaders between November and December, said China had yet to fully recover from the shock of the coronavirus pandemic. About two-thirds of executives polled by the consulting firm said they didn’t expect sales, profitability and hiring to return to 2019 levels until at least three months into 2021.
Economists have already pointed out that most spending comes from the public sector, largely on the basis of a broad stimulus package, rather than private companies.
Keyu Jin, professor of economics at the London School of Economics, identified three reasons for concern around the Chinese economy. First of all, she pointed out in the Japan Times, China’s exports have exceeded expectations as its industries, which reopened when the world shut down, acted as a global supplier of last resort. According to Professor Keyu, this would reverse when global production sites reopen. Second, he said, the recovery triggered wider structural deterioration, after years of economic reorientation from exports and investment to consumption. Third, she warned of looming financial risks arising from the real economy, predicting an increase in bad debt risk that will present significant threats to financial institutions.
Already, the China Beige Book has highlighted an increase in loan rejection rates for retail businesses from 14% to 38% in the last quarter of 2020 compared to the previous quarter. Refusal rates for small and medium-sized businesses reached 24% in the last quarter, double the rate posted by large businesses over the period.
Chinese President Xi Jinping appeared to recognize some of the challenges ahead; the Central Economic Work Conference did not go so far as to warn of “downward economic pressure” at its meeting in mid-December. But the three-day summit declaration asserted at the end of the key annual policy meeting that there were many uncertainties, “the foundations for our country’s economic recovery are not yet solid” and the recovery would be “unstable.” and uneven ”.