China flags. Picture: REUTERS
China flags. Picture: REUTERS

China is expected to report the highest quarterly economic growth ever since it began releasing such data 30 years ago, but that won’t give a true picture of the strength of the recovery.

The 18.5% year-on-year expansion predicted by a Bloomberg survey of economists is largely a mirror-image of the unprecedented decline in GDP in the first quarter of 2020 caused by coronavirus control measures. Investors need to look beyond that number to assess the state of the Chinese economy’s post-pandemic recovery.

Here’s a guide to what to watch out for in Friday’s GDP report:

Base Effects

The economy shrunk a record 6.8% in the first quarter of 2020 as Beijing became the first government to issue stay-at-home orders due to combat Covid-19. But the economy quickly bounced back once the restrictions were eased, recovering all the lost ground by the end of September and continuing to expand since then.

One way to better understand the results from the most recent three months is to compare it with the previous quarter instead of the same period in 2020. That captures the immediate momentum in the economy and removes the extraordinary lockdown period from the comparison.

An 18.5% expansion compared with the first three months of 2020 that growth actually plateaued from the previous quarter, according to economists at Goldman Sachs Group. That year-on-year number is therefore a dividing line indicating whether the recovery peaked at the end of 2020 or continued to gain pace.

There is some sign that momentum slowed due to tighter credit policy beginning late last year and social distancing measures to combat viral outbreaks that lingered into February. The median forecast is for quarterly growth to slow to 1.4% from 2.6% in the final three months of last year.

On the other hand, strong exports driven by overseas demand means trade likely contributed a considerable share to economic output, and sales of excavators continued to be robust in March, suggesting solid domestic investment growth.

Industrial Production

Strong industrial production last year was driven by “smokestack” industries such as steel and cement, and medical and electronic manufacturing, mostly for export. Monthly data will show if the industrial recovery has broadened.

Because manufacturing is the main component of the “secondary” sector, which consumes about 70% of China’s electric power, electricity consumption statistics released this week suggest industrial production surged 20.3% in March from a year ago, according to economists at Nomura Holdings.

The data is also expected to remain unusually high due to base effects, as the closure of workplaces continued into March last year. Some economists will look at an average of two-year growth to better assess the sector’s strength. Using that technique, Morgan Stanley economists expect industrial production growth likely accelerated to 7.6% in the first quarter of this year from 6.5% in the final three months of 2020, in part due to strong export demand.

Consumption and Employment

Retail sales data will provide a window into whether there has been an acceleration  in consumer spending, so far the weakest component of China’s economic recovery. Early indicators — such as spending during the recent national holiday — suggest improvement from last year but with some distance to go to return to pre-pandemic levels.

Morgan Stanley expects retail sales growth to pick up to 3.8% in March on a two-year average basis, faster than the 3.1% in January-February, as consumers boosted spending on services such as restaurant visits.

To a large extent consumption will depend on how the job market and wages have improved. While disposable income will likely have rebounded sharply in the first quarter from the low base, it may not have fed through to robust retail sales. A recent central bank survey showed that sentiment regarding jobs and income was still below pre-Covid-19 levels.


Corporate and government investment continue to be the economy’s main driver. Policymakers relied on property investment to fuel the recovery last year, but have instructed real estate developers to rein in borrowing that they use to fund projects. Monthly fixed-asset investment data will help show whether those measures weakened overall investment, or if government infrastructure spending and capacity expansion by manufacturers, who are enjoying strong profits, will make up for a downturn in housing.



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