China's economy grows 3.2 percent in 2nd quarter, recovers from virus shock

Kyodo News

Posted at Jul 16 2020 08:19 PM | Updated as of Jul 16 2020 09:00 PM

People wearing face masks walk past decorative lanterns outside a railway station in Hefei, Chinaís eastern Anhui province. Noel Celis, AFP file photo

BEIJING - China's economy grew 3.2 percent from a year earlier during the April-June period on the back of a rebound in production, marking the first expansion in two quarters, official data showed Thursday, underscoring that corporate demand has been recovering from the coronavirus shock.

But the pace of growth was slower than before the virus spread and economic prospects are uncertain as consumption is weak and exports are set to remain sluggish due largely to the pandemic and intensifying strains between China and the United States, analysts say.

Following the outbreak of the pneumonia-causing virus, China has since early this year been forced to restrict the movements of people and goods to prevent further infections, weighing heavily on consumer spending, employment and trade across the board.

In the first three months of 2020, when the virus raged in China, the nation's economy posted its first quarterly contraction on record, shrinking 6.8 percent from the previous year.

China usually sets a gross domestic product growth target at an annual parliamentary session, but it abandoned doing so this year with the epidemic of the virus, first detected in the central city of Wuhan, considerably darkening the economic outlook.

It was the first time since 1988 that China failed to set a GDP growth target at the legislature, which was postponed from March to May this year amid the virus spread.

Over the second quarter of 2020, industrial production increased 4.4 percent.

In the first half of this year, the total value of exports dropped 3.0 percent, while retail sales of consumer goods plunged 11.4 percent.

Investment in fixed assets, excluding rural households, fell 3.1 percent, but the pace of decline narrowed from a 16.1 percent slide in the January-March period.

As the pandemic significantly choked business activity, the Chinese leadership under President Xi Jinping has stepped up measures to shore up the export-oriented economy, such as providing ample funds to money markets.

Given that many companies have resumed normal operations in the country, dubbed the "world's factory," Chinese Premier Li Keqiang in late May expressed confidence that the economy can expand this year.

External demand, however, has been languishing against a backdrop of the global virus eruption since March, raising speculation that the Chinese economy may not recover at a pace that the Communist Party-led government expects.

Taking "the noticeably mounting external risks and challenges" into account, "the national economic recovery was still under pressure," China's National Bureau of Statistics said.

China's economy already showed signs it was headed toward a downturn last year, as a tit-for-tat tariff dispute with the United States dragged down exports, a major driver of growth, in turn dealing a crushing blow to investment and consumer spending at home.

In 2019, the nation's economy grew at its slowest pace in 29 years, expanding 6.1 percent from a year earlier.

With Sino-US tensions escalating in the wake of Beijing's recent enforcement of a national security law for its territory Hong Kong, lackluster demand for Chinese products from U.S. allies is likely to stifle the world's second-biggest economy.

Late last month, the National People's Congress Standing Committee, China's top legislative body, went on to enact the security law, prohibiting acts of secession, subversion, terrorism and collusion with foreign forces in Hong Kong.

On Tuesday, U.S. President Donald Trump signed an order to fully end the special treatment extended under American law to Hong Kong, saying that he will hold China accountable for its "oppressive actions" against the people of the former British colony.

Hong Kong has long played a role as an attractive investment destination and global financial hub, but the latest U.S. move could deprive the special administrative region of such status, which could erode direct investment to China.

The last time China's economy recorded a full year of economic contraction was 1976, the final year of the 10-year Cultural Revolution initiated by Mao Zedong that historians say killed tens of millions of people.

The International Monetary Fund, meanwhile, said late last month that China's economy is projected to grow 1.0 percent from the previous year in 2020, although the world economy is forecast to decline by 4.9 percent.

The virus that causes respiratory disease COVID-19 has sickened about 83,500 people in mainland China and killed more than 4,600. The increase in infections is believed to have peaked in late February in the country.