China’s economic growth in the first quarter mainly reflects how hard the world’s second-largest economy was hit by the Covid-19 pandemic early last year, rather than the strength of its recovery.

Although the GDP An increase of over 18% The year-on-year growth from January to March was only 0.6% in the last quarter of 2020.

When the National Bureau of Statistics released its estimate of growth in the second quarter on Thursday, it is expected that China will release a year-on-year overall figure of about 8%. However, the focus will be on signs of economic weakness and whether these signs are sufficient for the government to adjust policies.

Here are five things to be aware of after Thursday’s announcement.

Will the growth rate of industrial production and fixed asset investment slow down?

In the first quarter, industrial production increased by 24.5% year-on-year, and fixed-asset investment in March increased by 25.6% year-on-year, bringing a greater boost to the Chinese economy.

Both are related to a debt-driven “low-quality” growth model led by Chinese officials. Liu HeThe deputy prime minister wanted to leave but was tolerated to help the country recover from the pandemic. They have softened in recent months. Industrial production increased by 15.4% year-on-year in May, while the annual growth rate of fixed asset investment was lower than 10% in April and May.

Will China enter a new easing cycle?

The People’s Bank of China on Friday lowered the amount of reserves banks must maintain by 50 basis points to an average of 8.9%. This is the first such reduction since March 2020.

If the central bank will accelerate monetary easing now, analysts are divided. Wei Yao, economist at Société Générale, thinks it will. “When the economy is performing well, this tool will never be used,” she pointed out, adding that there may be another cut in reserves before the end of the year and a possible interest rate cut in 2022.

However, others believe that the central bank’s reserve cut last week was mainly in response to reduced liquidity when the medium-term lending facility expires.

“The main purpose of interest rate cuts is to reduce corporate costs by reducing bank costs,” said Larry Hu, chief China economist at Macquarie. “We don’t think [the] The interest rate cut heralds a new easing cycle or a slowdown in the future economy that is lower than expected. “

Will Liu Xiaobo’s goal of controlling financial risks exceed his concerns about economic slowdown?

The People’s Bank of China was only two days after China’s cabinet and the State Council urged it to cut its reserves. But the central bank ignored similar calls from the government in June 2020, indicating that there has been ongoing tension between officials worried about financial risks and officials more worried about stimulating growth.

The Liu’s camp was worried that loose monetary policy would stimulate reckless borrowing, which triggered a wave of Bond default Last year in China’s two largest industrial provinces.China’s largest Bad debt manager Some of the country’s largest real estate developers are also struggling to restructure their debt burdens.

Diana Choyleva of Enodo Economics said: “China has no time to deal with its mountain of bad debts and the resulting financial risks,” she added, adding that 2021 may be an “obvious dual year” for the Chinese economy.

But during crises such as the pandemic and before major political events of the Chinese Communist Party, supporting economic growth is always a priority. Centennial celebration This month. As the CCP tries to find a balance between promoting growth and reducing financial risks before next year’s party’s 20th National Congress, this tension will continue, and President Xi Jinping is expected to begin an unprecedented third term.

Will the restrictions on local government spending be relaxed?

One sign of who has won the policy debate is the bond issuance and investment of local government financing instruments, which have played an important role. Core role In terms of infrastructure investment.

Total infrastructure investment in May fell 3.6% year-on-year, which was the first annual decline since the outbreak of the new crown pneumonia in Wuhan last year, which caused most of China’s economy to shut down. In the first five months of this year, the total issuance of special purpose bonds was only 120 million yuan (US$186 billion), compared with 230 million yuan in the same period last year.

Will China’s COVID-19 strategy hinder growth?

Although China is still expected to fully vaccinate 70% of its population by the end of the year, it has no signs of abandoning the “Zero Covid” approach to the pandemic. This may limit inbound and outbound travel to a negligible level, at least until the Beijing Winter Olympics next year, and it will also take extreme measures in the event of an outbreak.Stern response to recent Infection group In one of the country’s largest ports, it caused huge disruptions to exporters.

This reminds us that although China has successfully contained the pandemic, its impact on certain economic sectors will continue until next year, or even longer.


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