On Friday, China’s National Bureau of Statistics released preliminary estimates showing the nation’s Gross Domestic Product (GDP) has surged by 18.3% in the first quarter of 2021, when compared to the first quarter of 2020.
The jaw-dropping year-on-year (YoY) GDP growth figure is the strongest year-on-year growth posted since records began in 1992.
The headline figure is however coming from an extraordinary low base. China’s GDP in the first quarter of 2020 was -6.8% YoY as hard lockdowns were introduced to curb COVID-19.
“As impressive as China’s GDP headline figures are, a quarter-on-quarter comparison tells a different story: GDP grew 0.6% in the first three months of this year, down from 3.2% over the final months of 2020. Not only is that a significant comedown, it’s also a far more useful comparison than looking year-on-year, which is skewed upwards by 2020’s low starting base,” said Fidelity International personal investing specialist, Toby Sims.
Economists are anticipating quarter-on-quarter growth will continue to be modest throughout the remainder of 2021.
Regardless, China’s economic growth in the wake of COVID-19 – without the extreme fiscal stimulus seen in the United States and other major economies – remains impressive
Retail sales
The offical data shows retail sales continue to recover well, with a 34.2%YoY increase.
The data indicates the hospitality sector has now recovered to 2019 levels, posting a 91.6%YoY increase.
These increases are buoyed by the fact Chinese residents are still unable to travel internationally. With no free-flowing travel, more money is being spent domestically.
While this has been beneficial for Chinese stocks exposed to domestic consumption, investors should be wary of domestic consumption easing when international travel reopens, giving China’s massive middle and upper class population the ability to spend abroad.
Industrial and agricultural production
During the quarter, the value added of the mining sector increased by 10.1%YoY, with an average two-year growth of 4.0%.
The manufacturing sector increased by 27.3%YoY with an average two-year growth of 6.9%. The production and supply of electricity, thermal power, gas and water increased by 15.9%YoY, with an average two-year growth of 4.8%.
In agriculture, crop farming witnessed a year-on-year increase of 3.3%, with an average two-year growth of 3.4%. There was a large increase in the output of the pork industry – up 31.9%YoY. China’s pig stock currently stands at 415.95 million, up 29.5%YoY
Fixed assets
Investments in fixed assets (Chinese data excludes investment in rural households) was up 25.6%YoY. When compared to the fourth quarter of 2020, the increase is 2.7%.
Fixed assets investment during the quarter was boosted by a significant increase in rail infrastructure – investment into rail construction has increased by 66.6%YoY.
Technology-related infrastructure investments were up 40%YoY. Some commentators have expressed concerns about how global semiconductor chip shortages could impact the Chinese technology sector throughout the remainder of the year. Some Chinese companies have expressed a desire to invest in in-house semiconductor production.