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China’s economic rebound was stronger than expected in Q2

The Chinese economy rebounded considerably in the second quarter, with GDP growth compared to the previous year higher than expected, recorded at 3.2%. Economists have said that such a recovery momentum should continue in the coming quarters, since the policies implemented should remain favorable and flexible.

The country became the first major economy in the world to experience a solid recovery from the impacts caused by the COVID-19 pandemic, while the Chinese economy returned to growth after a sharp contraction of 6.8% in the first trimester.

Key economic indicators have shown continuous improvement. Industrial production in the country is recovering quickly and rose 4.4% year-on-year in the second quarter, contrasting with the 8.4% drop in the first quarter, according to data released Thursday by the National Bureau of Statistics (BNS) ).

The service sector advanced 1.9% in the second quarter, reversing the 5.2% decline in the first three months of the year. Investments and consumption rebounded as the drop in capital investment narrowed to 3.1% in the first half while the contraction in retail sales narrowed to 3.9% in the second quarter after the sharp drop of 19% in the previous quarter, according to the SNB.

“Overall, the economy has gradually overcome the negative effects of the COVID-19 pandemic in the first half of the year and has shown restorative growth dynamics with greater resilience and vitality,” said Liu Aihua, BNS spokesperson at a press conference in Beijing.

Economists said China’s strong economic rebound was helped by factors such as the country’s effective measures to contain the pandemic, strong political support for the recovery of business and investment, and a recovery in exports better than expected thanks to the rapid resumption of production in the country.

“As the global pandemic situation continues to deteriorate, the Chinese economy has managed to recover quickly with GDP growth that has rebounded above 2%, which is a remarkable achievement,” said Lu Ting, chief economist at Nomura Securities.

Lu said the rapid recovery in production in China has helped the country’s export recovery and stabilized employment. In addition, effective and timely policies to stimulate investment in infrastructure have also helped to stimulate domestic demand.

Economists at US bank Goldman Sachs said in a research note that China’s economic performance in the second quarter was well above market expectations thanks to a weaker economic downturn caused by the virus and the strong and favorable political position of the government.

New policies to boost consumption and domestic demand are expected, as the country’s recovery has shown uneven signs, with supply recovering faster than demand while investment appears to rebound more strongly than consumption, according to economists.

Despite recent recovery, the country’s retail sales growth remains in negative territory, down 1.8% year-on-year in June, as the COVID-19 pandemic continues to curb consumer spending in restaurants and other areas that require physical contact.

Cheng Shi, Chief Economist of ICBC International, said China’s economic recovery target will likely shift from investment to consumption and marginal improvement in consumption will likely accelerate in the second half . He said he expected retail sales growth in China to turn positive in the third quarter.

A recent survey by the People’s Bank of China, the country’s central bank, has shown that the proportion of residents who plan to increase spending on accommodation, tourism and expensive goods over the next three months is increasing, indicating l improvement of the desire for spending by national consumers.

Economists expect monetary policy to gradually return to normal in the second half of the year while the general direction of government policy will remain favorable and flexible, as the country continues to face uncertainties foreign markets and that decision makers are still assessing the impact of the floods in the south of the country on the economic recovery.

Nonetheless, Cheng said the Chinese economy has shown strong resilience, which is likely to make yuan-denominated assets a scarce resource on the world market, which could drive asset prices higher and attract more international capital in the Chinese market.

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