English News

indianarrative
  • youtube
  • facebook
  • twitter

China registers growth but questions arise

China registers GDP growth amid Covid 19 pandemic but doubts remain

Even as China, one of the few countries to post economic growth of 2.3 per cent in 2020 when the global economy took a massive hit due to Covid 19 pandemic, the country’s retail sales remained subdued raising doubts on the quality of GDP expansion. China’s growth amid an acute global slowdown has been driven by expanded government investment and

expenditure. According to Xinhua, the state run news platform, China's retail sales of consumer goods fell 3.9 per cent year on year in 2020, though the country’s fourth quarter GDP growth stood at a strong 6.5 per cent.

Level of retail sales indicates pattern of overall consumption. The urban areas were impacted more than the rural markets. While consumption alone is not ideal to drive growth, it forms an integral part of the overall growth engine.

As public expenditure increased aimed at keeping the growth engine moving, the financial stress among local governments has risen while the private sector is still not out of the woods.

The Washington-based Institute of International Finance (IIF) last year said that China’s debt was on track to hit a whopping 335 per cent of GDP. This however included debt across all sectors such as household, government, financial and non-financial corporate.

A recent report that appeared on Nasdaq noted that “to keep the other parts of the engine running, local governments issued record amounts of debt to ramp up spending.”

Spanish economist Daniel Lacalle in his blog two months ago said that China’s is a planned GDP. “The GDP of China is dictated by production, not demand. It is not an observed GDP, but rather planned by the government together with the provinces. For this reason, many analysts scrutinize the data and deduct various factors, including the increase and valuation of inventories,” he said, adding that the country’s economy is marked by overcapacity where “ghost cities and white elephant uneconomical projects are multiplying.”

Besides, several economists have also opined that the global slowdown which has impacted most countries that have been beneficiaries of the much hyped Belt and Road Initiative could severely impact China’s banking system. “Most countries in Africa and Asia are not in any position to service the debt received under the BRI umbrella,” an analyst said.

According to a CNBC report “investments in China’s massive infrastructure project in 2020 could fall ‘well short’ of last year’s level as the coronavirus pandemic caused financial strains in participating countries.