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China’s super-fast economic recovery | The Economist

D.Chinese Lunar New Year holidayHeld from January 21 to 27, many slapped the statue of Qin Hui, a conspirator of the Song dynasty and notorious for making up military heroes. One visitor went crazy by hitting the statue with a censer lid. The mood is high after Qin’s villain appears in the new movie Full River Red, which topped the box office charts during the holidays.

This frenzy of movie-going, sightseeing and statue-slaps is evidence of a rapid consumer recovery in the world’s second-largest economy. The number of visitors during the period was 300,000, the highest number in three years.Not only was the box office better than last year, but it was also higher than the year before covid-19. To group medical examinationcurrently gathered on the screen.

Recovery is arriving sooner than expected as the virus spread quickly. Since China hastily abandoned its coronavirus-free regime, the epidemic seems to have passed surprisingly quickly. State epidemiologists estimate that at least 80% of the population is already infected with the disease. According to official statistics, the number of hospital admissions he had peaked on January 5. A second wave of infections was expected after holiday travel spread the disease from cities to villages. The much-feared second wave appears to have merged with the first, says Life His Science his data company Airfinity.

The death toll from all these infections is unknown, but the economic fallout is becoming more evident. China’s service economy is booming as people recover from the virus. The non-manufacturing activity index, based on monthly surveys of purchasing managers, jumped from his 41.6 in December to 54.4 in January, the second-largest leap ever. Bank of America’s Xiaoqing Pi and Helen Qiao observe a sharp increase in activity in the “pandemic-hit” service sectors such as retail, lodging and food and beverages.

On Meituan, an e-commerce platform, some restaurants have accumulated waiting lists as long as 1,000 tables. people accustomed to waiting in line PCR Tests are waiting to pray at popular temples. In Hangzhou, the capital of Zhejiang province, people gathered outside Linshun Temple at 4am to burn incense to the God of Wealth. Others who made it to the top of Hunan’s spectacular Tianmen Mountain, famous for its dizzying glass walkways, had to wait until 9pm to board the cable car. national business dailythe national newspaper.

Can this ferocious pace be sustained? Optimists point to household budgets being unusually fluid. Their bank deposits now exceed 120 trillion yuan ($18 trillion), up 100% from last year. gdp, and bank Citigroup said it may have beaten expectations by 13 trillion yuan, given pre-pandemic trends. These deposits could provide ammunition for “retaliation spending”.

But ammunition can be set aside for other purposes. Much consists of cash that nervous households keep in banks rather than use it to buy properties or invest in mutual funds. They are less likely to spend money lavishly on goods and services now. I consider it a match of “Revenge Risk Take”. This will boost asset prices and give the housing market a much-needed boost.

So perhaps a more accurate way to assess the upcoming spending boom is to look at the gap between household income and consumer spending. In his three years pre-pandemic, the household saved 30% of disposable income. They saved him 33% during the pandemic. The cumulative result of this extra savings is about RMB 4.9 trillion. If a consumer added that to his spending this year, his spending would increase by 14% (before adjusting for inflation).

The exact size of the spree will ultimately depend on the wider economic situation. Property prices have fallen, the job market is weak and youth unemployment remains above 16%. However, China’s labor market is recovering rapidly after previous coronavirus setbacks, with unemployed youth making up only about 1% of the urban workforce. If you’re lucky, spending a little extra will increase sales, strengthen employment, and incentivize additional spending as a result. All of this means that consumption could be the bulk of China’s growth this year. Nearly 80%, including government spending, according to Citigroup. This will be the highest share for over 20 years.

China’s spending will make a welcome contribution to global growth.according to imfThe country’s economy will grow by 5.2% this year, accounting for two-fifths of the global economic expansion, according to forecasts released on January 30. Combined, the United States and the Eurozone make him less than a fifth of the contribution.

A recent study by economists at the US Federal Reserve makes a basic point in its title. “What’s happening in China doesn’t stay in China.” Their estimates suggest policy-induced economic expansion in China. gdp An extra 1% adds about 0.25% to the rest of the world. gdp A year or two later. The authors did not examine the spillover effects of China’s economic resumption. However, their results are somewhat indicative of possible outcomes. If China’s resumption of economic activity lifts domestic growth from 3% to 5-6% this year, the ripple effect could be 0.5-0.75% for the rest of the world. gdpor about $400 billion to $600 billion annually.

However, higher growth rates are not purely good. Central banks still want to keep inflation under control. If rising Chinese demand adds to price pressures, policymakers may feel compelled to slow the economy by delaying rate hikes or cuts. Federal Reserve Vice Chairman Lael Brainard said China’s exit from the coronavirus pandemic would have uncertain implications for global demand and inflation, especially commodity inflation. European Central Bank President Christine Lagarde has warned that “inflationary pressures” will rise as China consumes more energy. Another bank, Goldman Sachs, said the reopening could add $15 to $21 to a barrel of Brent crude, which currently trades at about $80.

After the Asian currency crisis of 1997, the Chinese economy contributed to the stability of the region. After the global financial crisis a decade later, China’s growth contributed to global stability. It will again be the single largest contributor to global growth this year. However, while China’s contribution has historically come from investment spending, consumption is now taking the lead. Chinese consumers have traditionally punched lighter than their weight. This year they will hit harder.

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https://www.economist.com/finance-and-economics/2023/02/05/chinas-ultra-fast-economic-recovery China’s super-fast economic recovery | The Economist

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