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On Friday, April 16th, 2021, the National Bureau of Statistics released data on the growth rate of the gross domestic product (GDP) in the first quarter of 2021. The most important information of which is that the pace of economic recovery has accelerated, with GDP growing by 18.3% from the previous year’s drop amidst the start of the Covid-19 pandemic. The key drivers were the continuing rise of domestic and foreign demand, as well as accommodating government policies for small and medium enterprises.
The data indicates that the most recent quarterly rate of 18.3% has been the highest ever since the official quarterly rates records were first implemented in 1992. The economic recovery which followed the lockdown in China at the start of 2020 was largely driven by rising exports, as manufacturers across the country faced an unprecedented number of orders from both domestic and foreign customers. Furthermore, with strict measures in place which enabled to quickly curb the virus, domestic consumption has been gradually picking up too, with customers returning to restaurants and malls. Car manufacturers have also been enjoying an increased flow of new customers. Overall, retail sales were up by 34.2% year-on-year in March, higher than the forecasts by analysts of 28%. Accordingly, the factory output increased by 14.1% year-on-year in March.
The rapid expansion in Q1 2021 is expected to normalize and moderate for the rest of the year. The policy is unlikely to continue being accommodative and will likely focus on ensuring the economy is not overheated and financial risks are well managed. Economic growth is projected to be moderate as the boom in exports and several sectors is likely to return to the long-term trend level. The policy shift’s goal, as previously mentioned, will likely be to balance and control the financial risks in an overheating economy, yet at the same time, attempting not to undermine the recovery, therefore, avoiding making any major policy shifts.
With the highest quarterly economic growth ever recorded since 1992, China demonstrates a strong rate of economic recovery driven by increased exports, rise in domestic consumption, and accommodative state policy. If you would like to know more about the most recent tax and financial developments in China, please contact us at info@phcadvisory.com.
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