By: He Weiwen    Source: CGTN    Published: 2021-04-16

China's GDP increased by 18.3 percent during Q1 2021 compared to a year ago. It is a remarkable performance as Q1 GDP also registered 0.6 percent growth over Q4 2020.

The 18.3 percent growth rate was based on the sharp fall of 6.8 percent during Q1,2020, caused by the outbreak of COVID-19. Compared with Q1 2019, the pre-COVID-19 corresponding period, it was 10.3 percent higher, which shows that China's economy is still on the way to full recovery.

If we take a two-year comparison, compare the Q1 2021 data to that of Q1 2019, the pre-COVID-19 period, a clear divergence among different sectors appears. The primary and secondary sectors have been back to normal growth in general. The average annual growth rates during this period were 2.3 percent and six percent respectively. In 2019, the primary sector grew by 3.1 percent and the secondary sector by 5.7 percent. The tertiary sector, on the other hand, grew by only 4.7 percent per annum over the past two years, compared to 6.9 percent growth in 2019.

The main drivers

The upturn in China's economy during Q1 2021 was largely driven by high-tech industrial production and exports. Industrial added value increased by 24.5 percent year on year and by 6.8 percent per annum over the past two years. It was a full percentage point higher than the growth rate for the whole year of 2019 when it grew by 5.7 percent. The strong growth engine behind the accelerated industrial growth was the high-tech industries. The new energy vehicles (NEV), industrial robots, microcomputer and integrated circuits (IC) all grew by over 60 percent year on year and over 19 percent per annum over the past two years.

Another major driver was import and export of goods. It performed even better than industrial production. Total import and export volume reached 8.469 trillion yuan, 29.2 percent higher than a year ago. The export performed better than import. During Q1 2021, export grew by 38.7 percent and import by 19.3 percent. Faster export growth resulted in a sharp rise of trade surplus to 759.3 billion yuan, more than seven times larger than a year ago. Therefore, net export contributed significantly to overall GDP growth during Q1 2021.

Tourists shop at a duty-free shopping mall in Sanya City, south China's Hainan Province, October 5, 2020. /Xinhua

The tertiary sector has not fully recovered by Q1 2021. Retail sales, though shot up 33.9 percent over the doldrum in Q1 2020, managed only 4.2 percent annual growth over the past two years. While the disposable income grew by seven percent per annum on average over the past two years, their consumer spending grew by only 3.9 percent.

Fast growth expected for whole year

Based on the latest indicators, we have all the confidence that the tertiary sector growth will gain momentum for the rest of the year. The index for business activity in China's services sector stood at 55.2 percent in March, 4.4 percentage points higher than in February. Accommodation and catering, leasing have seen their activities back to boom area. Rail and air transportation, financial and internet services, too, have their business activities indices above 60 percent. With the fast expansion of industry production, the industry-related services will grow stronger. It looks most likely that the tertiary sector will have a higher growth rate during Q2, most likely at 5.0-5.5 percent, to be further accelerated during the second half of 2021. As the tertiary sector accounts for over half of total GDP, its acceleration will become a new, decisive driver for the whole economy.

While the industrial production is set to maintain fast growth for the rest of the year, with high-tech industries possibly growing even faster, the exceptionally fast growth of trade will decelerate somewhat, as the economies in other parts of the world, especially in the U.S., Europe and the rest of Asia, demand for Chinese goods will tend to level off.

On balance, the Chinese economy will remain on the fast growth track. The year-on-year growth rates for Q2, Q3 and Q4 will fall with each quarter, due to the much higher base in the corresponding period of 2020. For the whole year of 2021, it is most likely that China will see its GDP growth at around nine percent.

A continuous leading contributor to world economic growth

The world economy is presenting a dramatically different scenario in 2021, compared to that in 2020. The whole world was hit severely by the worst economic recession since the Great Depression in the 1930s and saw its GDP off 3.3 percent. China was the only leading economy that managed a GDP growth and served as the only bright beacon in the world economic darkness. Since the start of 2021, however, firm recovery appeared in different parts of the world. The latest IMF World Economic Outlook released on April 6 estimates the world GDP to grow by six percent, with the U.S. to grow by 6.4 percent and India even by 12.5 percent. China will no longer serve as the only growing leading economy, nor the fastest growing economy. However, if we calculate the accumulative growth and average annual growth rate for the two years (2020 and 2021), China is still an apparent leader.

He Weiwen is a senior fellow at the Chongyang Institute for Financial Studies, Renmin University of China.

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