As Foreign Minister Nanaia Mahuta highlights the need for New Zealand to diversify its trade beyond China, the Chinese people are spending a third more on consumer goods. Its extraordinary GDP numbers represent both a record level of growth – and a cautious slowdown.

China’s economy grew by 18.3 percent in the first quarter of 2021, compared to a year earlier. The high growth rate largely reflects the low base set in the first quarter of 2020. Quarter-on-quarter growth, however, slowed down to 0.6 percent from 2.6 per cent in the previous three months.

According to the announcement by the National Bureau of Statistics of China on 16 April 2021, the gross domestic product in the first quarter reached 24,931 billion yuan, up by 18.3 percent year on year.

What do you think? Click here to comment.

The announced year-on-year quarterly growth is in line with the expectations. In a survey of economists by Nikkei and Nikkei Quick News, majority of them expected a rate of 18 percent growth or more. A Bloomberg survey of economists predicted 18.5 per cent growth. An AFP poll, based on the average forecast by economists from 15 institutions, predicted an expansion of 18.7 percent. The expected growth was 19 percent according to a poll conducted by the Reuters news agency.

In historical comparison, China’s first quarter GDP growth rate is a record. Quarterly records have been available since early 1990s, and 18.3 percent is higher than any other year-on-year GDP growth for the Chinese economy. Historically, the first quarter of 1993 (15.3 percent) and the second quarter of 2007 (15 percent) recorded the highest year-on-year quarterly growth rates in real terms.

Year-on-year growth of real GDP in China (%), Q1-1993 to Q4-2020; Growth rate compared to the same quarter of previous year, seasonally adjusted. Source: OECD Quarterly National Accounts, Accessed 17 April 2021.

This high growth rate partly reflects the low base set in the first quarter of 2020, which is the so-called base effect. The base effect, in this context, refers to a quarter in which a sudden decline in the first quarter of 2020 generated the opposite effect a year later.

China’s year-on-year growth of quarterly GDP was -6.8 per cent in the first quarter of 2020. This was a historic slump. To put this into perspective, the year-over-year decline in China’s GDP experienced as a result of the pandemic (comparing growth in 2019Q1 to 2020Q1) is more than twice as large of that during the GFC (comparing growth in Q1-2008 to Q1-2009).

Given last year’s low base, quarterly comparisons might be more useful.

Quarter-on-quarter growth slowed to 0.6 percent

Year-on-year data has been the preferred calculation for the National Bureau of Statistics of China (NBS), which only started to record quarterly growth rates in the first quarter of 2011.

The GDP in the first quarter of 2021 grew by 0.6 per cent over that in the fourth quarter of 2020. This quarter-on-quarter growth rate is the second lowest since the first quarter of 2011. The lowest one, unsurprisingly, was observed last year. China’s quarter-on-quarter growth was -9.7 percent in the first quarter of 2020.

The average quarter-on-quarter growth rate in the pre-pandemic era (between Q1-2011 and Q4-2019) was 1.7 percent, which is higher than that of Q1-2021 by a factor of almost three. This suggests that we should watch the quarter-on-quarter growth rates more closely in the upcoming quarters.

Quarter-on-quarter growth of real GDP in China (%), 2011Q1-2020Q4; Growth rate compared to the previous quarter, seasonally adjusted. Source: OECD Quarterly National Accounts, Accessed 17 April 2021.

Various economic data released in the first three months of 2021 indicate some positive signals for the Chinese economy. The total retail sales of consumer goods grew by 34.2 percent year on year, up slightly from the 33.8 percent increase in January and February.

The press release also emphasises that “the urban surveyed unemployment rate went down and the employment was generally stable”.

Urban surveyed unemployment rate is calculated by a sample survey, which refers to the ratio of urban unemployed population to the sum of the employed population and the unemployed population. In March 2021, the urban surveyed unemployment rate was 5.3 percent, down by 0.6 percentage point lower than that of the same period of 2020. One of the main projected targets for 2021 is to keep the surveyed urban unemployment rate around 5.5 percent. The target is possible considering the declining trend since February 2020.

Monthly surveyed urban employment rate in China (%). Source: National Bureau of Statistics of China.

China’s foreign trade also increased in the first quarter of 2021. China is the largest exporter of the goods in the world and its dollar-denominated exports surged by more than 60 percent in the first two months of 2021 compared to a year earlier.

Then, China’s exports grew by another 30.6 percent in US dollar terms in March 2021, compared to a year earlier.

The export figures are also partly distorted because of last year’s low base. In March 2020, China’s exports had dropped 6.6 percent from a year earlier.

China’s US dollar denominated foreign trade growth (%); Jan-Feb 2021 totals are combined. Year-on-year growth. Source: General Administration of Customs People’s Republic of China

China’s import growth has been positive since September 2020. China’s imports grew by 22.2 percent in US dollar terms in combined figures for January and February 2021 from a year earlier. China’s dollar-denominated imports grew by 38.1 per cent in March 2021 from a year earlier.

In US dollars, China’s imports from New Zealand rose by 22.2 percent at the end of March 2021, while exports to New Zealand rose by 66.1 percent. Similarly, China’s imports from Australia rose by 20.9 per cent in US dollar terms, and exports to Australia rose by 50.5 percent in US dollar terms in March 2021.

A comparison with the US

We will learn the first quarter growth for the US at the end of April 2021. There are, however, some recent estimates and data releases, which provide a perspective for the US economy.

The GDPNow tracks data in real time and runs estimate of the US real GDP growth based on available economic data for the current measured quarter. Their latest seasonally adjusted annual rate estimate (on April 16) is 8.3 percent. This means that the US will keep growing. Real GDP increased at an annual rate of 4.3 percent in the fourth quarter of 2020. Recent data releases provide an optimistic picture for the US economy.

According to the Federal Reserve, US industrial production rose 1.4 percent in March, after a revised 2.6 percent fall in the prior month that was “largely resulted from widespread outages related to severe winter weather in the south central region of the country.” Manufacturing output increased 2.7 percent in March, following a decline of 3.7 percent in February.

The regional outlooks are also promising. For example, Federal Reserve Bank of Philadelphia’s current manufacturing activity rose from a revised reading of 44.5 in March to 50.2 in April. 71 percent of the firms, responding to the April Manufacturing Business Outlook Survey, expect increases in activity over the next six months.

America and China are the world’s two largest economies, and millions of investors closely follow economic data from both countries. The rest of 2021 will be critical.

Leave a comment