By mid-January last year, just as many Chinese were completing travel plans in preparation for the Lunar New Year's holidays, rumors about a
mysterious new disease in the central Chinese city of Wuhan began
circulating online.To get more
China economy news, you can visit shine news official website.
Yet when news broke on Jan. 25 that the entire city of 11 million people would be in lockdown, there was a widespread shock. Suddenly,
celebrations which usually involve half the country crowding trains and
buses as they head home for family reunions, feasts and fireworks, were
suspended.
It was not just in Wuhan that activity came to a halt. All over the mainland, people were reluctant to venture outside; they exchanged red
packets of money and shopped virtually instead. Online sales of
everything from mahjong tiles to treadmills soared. By the end of the
first quarter of 2020, the economy shrunk 6.8% from the level in the
first quarter of 2019 in real terms.
Yet, a year later, in mid-February, as the year of the rat finally drew to a welcome end, China emerged from the COVID pandemic relatively
unscathed. This past December, for example, fast-food restaurant
McDonald's had a better month than it did in the last month of 2019,
just before the virus struck.
The economy, in other words, is healing. It is the only major economy in the world to have positive growth for 2020, at 2.3%. Indeed, with
gross domestic product up 6.5% in the final quarter, the mainland has
returned to its pre-COVID trajectory. Only Taiwan and Vietnam can make a
similar boast.A second wave, making a reappearance in northern areas of
China in January, was curbed by the measures which proved effective
last year, including mass testing and curbs on travel.
That means Beijing can now shift its attention from the immediate challenge of COVID. In the past, the focus has generally been on
maximizing growth. But today, the policy is more about improving the
quality of growth. Going forward, that means growth will be less
credit-driven and the potential financial risks coming from
over-borrowing by both corporates and households reduced.
The emphasis on deleveraging contrasts greatly with the official policy in the rest of the developed world. Today, most developed
countries rely on a mix of fiscal and monetary policies marked by
financial asset purchases and zero interest rates, thereby encouraging
both risk-taking in financial markets and asset bubbles.
This focus on the quality of growth has been building up for some years. For example, in the years between 2012 and 2016, the growth in
debt as a proportion of GDP increased by over 8 percentage points. But
in 2017, Beijing sharply reduced that number to just over 1 percentage
point, particularly by clamping down on the hunger for borrowing from
local governments, according to data from Helen Qiao, who heads Asian
economic research for Bank of America. That control, however, was
relaxed to deal with the pandemic last year, leading to a surge in debt
to GDP of over 300% of GDP.
But today, Beijing has wasted no time in reintroducing restrictions on borrowing. The tightening is especially targeted at real estate
developers, with their voracious appetite for debt, to reduce leverage
and slow the rise in housing prices, especially in first-tier cities, in
line with President Xi Jinping's edict that houses are for living in,
not speculation.
