China Can Spend More to Grow More
In 2020, China’s economy will probably grow by 2-2.5% – significantly better performance than the other major economies, which are facing contractions. But China still faces serious challenges, which can be addressed only by implementing a more expansionary fiscal policy in the near term.
BEIJING – China’s economy seems largely to have bounced back from the COVID-19 shock. It registered 4.9% annual growth in the third quarter of 2020, and the rate may well exceed 5% growth in the fourth quarter. The result would be at least 2% annual full-year growth – not bad at a time when much of the world is facing a pandemic-induced recession. But that doesn’t mean smooth sailing ahead.
Consumption growth is a key consideration in determining China’s likely overall performance in 2020. While final consumption figures for the third quarter are not yet available, total retail sales of social consumer goods offer a useful proxy. Unfortunately, the picture is not particularly bright: though monthly growth in retail sales of social consumer goods has turned positive since August, total sales fell 5.9% year on year in the first ten months of 2020.
The consensus in China is that the annual growth rate of retail sales of social consumer goods will turn positive only at the very end of this year, despite the recovery in household consumption. And past experience suggests that final consumption growth will be even lower. In 2019, for example, the figures were 6.3% and 8%, respectively.