Post-Pandemic Economic Recovery and New Market Space in China

On July 16, the National Bureau of Statistics released economic data for the second quarter and the first half of 2020. According to a preliminary calculation, China’s GDP in the first half of the year was RMB 45.66414 trillion, representing a year-on-year decline of 1.6% in the first half of 2020 based on comparable prices. On a quarterly basis, it fell 6.8% in the first quarter and grew 3.2% in the second. In the second quarter, the economic growth rate turned positive and reached 3.2%, a fair growth considering the impact of the COVID-19 pandemic.

In terms of investment, from January to June, fixed asset investment (excluding rural households) nationwide reached RMB 28.1603 trillion, down 3.1% year-on-year and 3.2 percentage points less than that from January to May. Private investment in fixed assets reached RMB 15.7867 trillion, down 7.3% or 2.3 percentage points. In terms of consumption, the total retail sales of consumer goods reached RMB 3.352.6 trillion in June, down 1.8% year-on-year (down 2.9% after deducting the real price factor), a decline narrowed by 1.0 percentage points than that of the previous month. Of this amount, retail sales of consumer goods other than automobiles amounted to RMB 2.9914 trillion, down 1.0%. From January to June, the total retail sales of consumer goods reached RMB 17.2256 trillion, down 11.4% year-on-year. Industry continued to recover in the second quarter. In June, the value added of the industrial enterprises above designated size increased by 4.8% in real terms year-on-year, 0.4 percentage points faster than that of May. From a month-on-month perspective, the value added of the industrial enterprises above designated size increased by 1.30% in June over the previous month. From January to June, the value added of the industrial enterprises above designated size fell 1.3% year-on-year. Foreign trade has picked up. In renminbi terms, exports rose 4.3% in June from a year earlier, the third consecutive month of positive year-on-year growth. In dollar terms, exports rose 0.5% in June from a year earlier, a positive change from -3.3% in May. On the import side, in renminbi terms, imports rose 6.2% in June from a year earlier, compared with -12.7% in May. In dollar terms, imports rose 2.7% in June from a year earlier, compared with -16.7% in May and -6.8% a year earlier.

According to the data, China’s economic recovery in the second quarter was reasonably good, which is more optimistic than the market had expected. Both industrial added value and foreign trade showed positive growth. However, consumption and investment remain weak, with consumption growth remains a concern, and private investment growth has fallen more than the overall rate, indicating that business conditions remain poor. What these figures shown are within expectation; after the pandemic, China’s economy is at a set pace of slow recovery. Industrial production, in particular, has been significantly promoted by the resumption of work and production policy.

From the perspective of China’s current and future economy, the notable issue is consumption. China is a production-oriented country, but consumption growth in recent years has become the most important pillar of the economy. In 2019, final consumption expenditure contributed 57.8% of GDP growth, higher than total capital expenditure by 26.6 percentage points. Judging from the data in the first half of the year, domestic consumption is gradually recovering, but the pace is still slow (-1.8%). If the impact of the pandemic is brought under control, consumption is expected to return to positive growth in the second half of the year. Unlike investment, which has immediate effect, the cultivation and growth of consumption is a long-term work, which cannot become a new support for the Chinese economy after the pandemic in the short term. It is precisely because the development of consumption is a slow process that we must take a long-term view. China must focus on consumption now and continue to do so. Only in this way can consumption support China’s economy in the future.

During the pandemic this year, the central government of China emphasizes the domestic-international “dual circulations”. With the deterioration of the external economic and geopolitical environment, China has taken promoting the “internal citculation” as the main direction of economic development. Researchers at ANBOUND believe that to promote the economic “internal circulation” is to find new impetus to support China’s economy in the new economic environment of anti-globalization.

How can China find new impetus for its economy? In the past, China have focused on the development of export processing industries, economic development zones and “railway infrastructure” in the southeast coastal areas. In recent years, the focus has shifted to technological innovation, urbanization, consumption and the “new infrastructure”. But frankly, none of this is enough to support new growth for China right now. Chan Kung, a scholar at ANBOUND, suggests that China should rethink the geo-economic value of the “Yangtze River Economic Belt” and make adjustments in the strategy of development, spatial arrangement and timing of development in the overall “inward” development strategy in the future.

Chan Kung believes that the key strategy beyond the environment for China’s economic development is: to resume the construction of Yangtze River Economic Belt on the basis of high standards environmental protection; to promote economic development in the west of the Yangtze River Economic Belt; and to build a balanced economic space along the Yangtze River Economic Belt to hedge the huge impact of external environment change on China’s economy. These key strategies will help balance China’s economic growth, expand consumption space and drive consumption growth, while promoting and achieving a healthy economic and social transformation in China.

Estimates by ANBOUND show that the GDP added value gap between the east and west ends of China’s Yangtze River Economic Belt is about RMB 12 trillion. However, the development gap also brings policy space. Once China achieves basic balanced development at both ends of the Yangtze River Economic Belt, the market space in China’s central and western regions will burst into a huge momentum of development. Once the market of western regions is fully developed, its added value of GDP in three years is expected to be almost equal to the total size of the local government debt in China. This will provide an effective solution to the troublesome local government debt problem. The development space and potential are huge and the prospects are promising.

It is an important to develop the Yangtze River Economic Belt in a new way in the context of the deterioration of the external economic environment and the expiration of the period of the internal massive policy easing. To put it simply, the proposal of developing the Yangtze River Economic Belt is to expand internal demand from a geostrategic perspective. Today, China is facing situations such as anti-globalization, containment, flood, internal circulation, consumption, etc. Can China’s consumption problem be solved without creating new market space? Can excess capacity be absorbed? The big push for Belt and Road Initiative in the past few years has been to seek outside market space. Whereas, the restart of the development of the Yangtze River Economic Belt is to open up domestic market space. This is a new space worthy of serious consideration by decision-makers.

Final analysis conclusion:

China’s economy slowly recovered amid the pandemic, revealing an urgent need for new market space. Large-scale resumption of the construction of the Yangtze River Economic Belt is an effective way to expand the future market space.


Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy