China's soaring data in the first two months of 2021 showed its economy is in the process of recovery that has started since the second quarter of last year, but the growth is uneven with strong industrial output and lagging consumption and investment, according to experts.
By encouraging most of the workers to stay put for the Spring Festival holiday instead of returning to their hometowns, industrial output has increased, said Liu Aihua, director-general of the Department of Comprehensive Statistics at the National Bureau of Statistics (NBS).
The strong growth in industrial output is also fueled by exports, as external demand is improving because of the world economic recovery as well as the pickup of manufacturing in other major economies, according to Liu.
The data is upbeat, thanks to a low comparison base from last year when the coronavirus pandemic brought disruption, Liu said.
The industrial output in the first two months of the year went up by 35.1 percent from the previous year, and retail sales and fixed asset investment increased by 33.8 percent and 35 percent respectively, NBS data showed on Monday.
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To adjust for base effects, a simple approach is to compare data this year with data from 2019, and the adjusted growth rate of industrial output, fixed-asset investment and retail sales was 16.9 percent, 1.9 percent and 6.4 percent, according to Nomura.
Lagging consumption and investment
The adjusted data "suggests the recovery of industrial output has been much faster than that of retail sales," Lu Ting, chief China economist at Nomura, said in an email to CGTN.
Retail sales was especially affected by the social distancing measures imposed to counter the second wave of COVID-19 right before the Chinese Lunar New Year holiday in mid-February, Lu said.
"Consumption saw strong rebound from last year but yet to return to its historical trend," Wang Dan, chief economist at Hang Seng Bank China told CGTN.
Wang said that data suggested a warming up in urban services sector, while weak job markets in small cities drag the recovery of consumption.
The rising demand in new energy vehicles and premium models, along with supportive policies in the car industry, has bolstered car sales, she added.
The NBS official said spending in restaurants has not yet returned to the level before the epidemic, which is still affected by clustering pandemic cases in some areas.
Investment bank UBS believed that expenditures in transportation, tourism and other services are likely to be weaker than normal in previous years.
"Although investment in both manufacturing and infrastructure rebounded significantly from last year's low base, neither of them returned to the level of early 2019," UBS wrote in an email to CGTN.
This is also affected by a variety of factors, including the restoration of corporate investment capabilities as well as investment confidence, the NBS official said.
However, Wang said metal cutting machines and industrial robots, whose industrial output have surged, are usually considered as leading indicators for future industrial investment, and their strong growth since late 2020 signals that China is entering a new phase of industrial expansion.
"Domestically, the unbalanced recovery is still notable, and the foundation for the economic recovery is not solid yet," said the NBS official.
Liu added that challenges remain for China's economy as it faces a complex international community alongside the pressures of keeping COVID-19 under control, but it will most likely continue its economic recovery due to its advantages in human resources, market space and industrial systems.
The official said that the policy must maintain continuity and not make a sharp turn, and it should adjust and improve in response to real-time changes. Liu believed the policies China adopted are predictive of the complexity and severity of the situation, and the authorities will facilitate the stability of the economic fundamentals.