China’s economy grew by 18.3% year-on-year in the first quarter of 2021, the sharpest expansion since quarterly records began in 1992. This is a jaw-dropping jump, but should be viewed with some caution. It can be partly explained by a low base of comparison, considering that the economy shrank by 6.8% a year earlier when the country was in the throes of the coronavirus outbreak.
Such a blip notwithstanding, the rebound demonstrates China’s economic resilience relative to other leading economies in coping with the pandemic-induced fallout. The recovery was relatively broad-based: in March, industrial output and retail sales rose by 14.1% and 35.1% year-on-year respectively, while fixed-asset investment increased by 25.6% in the first quarter compared to 2.9% for the full year of 2020.
The question remains as to whether the growth momentum, in particular for domestic demand, can continue into the rest of the year. On a quarter-on-quarter basis, the Chinese economy grew by only 0.6% in Q1.
Policymakers have indicated that financial stability will be given a higher priority in 2021. During the annual session of the National People’s Congress in March, Premier Li Keqiang declared that the government would strive to maintain stability for China’s overall leverage ratio in 2021. China’s benchmark interest rate, the one-year loan prime rate, has stayed at 3.85% for 12 consecutive months since it was reduced by a total of 20 basis points at the onset of the pandemic.
The Central Government has also set an economic growth target of 6% for 2021 after deciding last year not to set a target, due to uncertainties brought about by the pandemic.
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