China’s GDP Growth: What it Means for Global Economy

China’s gross domestic product (GDP) grew 5.3% in the first quarter against a year earlier to $4.17 trillion, according the Chinese National Bureau of Statistics (NBS) last week.

Sheng Laiyun, deputy head of the National Bureau of Statistics, told a press conference, “The national economy has sustained recovery momentum and got off to a good start. These positive factors driving economic recovery are accumulating and strengthening, laying a good foundation for full-year growth.”

This growth beats expectations, owing to a robust growth in the high-tech manufacturing sector. It exceeds a Reuters poll of analysts that forecast 4.6% and expands from the 5.2% of the previous quarter.

Better Than Expected

Data shows that industrial production increased 6.1% in the first quarter compared to a year earlier, whereas industrial producer prices fell 2.7% as a result of deflationary pressures on the manufacturing sector.

China’s GDP Growth: What it Means for Global Economy
China’s GDP growth

According to NBS data, fixed asset investment grew 4.5% compared to the previous years, driven by a 9.9% increase in manufacturing investment. Over the quarter, retail sales saw a 4.7% expansion, down from 5.5% for the January-February period.

Larry Hu, chief China economist at Macquarie, noted that the first-quarter growth is “better than expected,” although the retail sales and property numbers look relatively weak, he told Financial Times.

He added that these figures were driven by “exports and capex for new energy industries.” He didn’t expect any “step up” in stimulus because growth aligned with official targets.

Drivers of Growth

China, the world’s second largest economy, has set a GDP growth target of 5% this year, which analysts have described as ambitious. Most of China’s growth is based on three new industries: electric vehicles (EVs), solar panels, and batteries, according to CNN.

Harry Murphy Cruise, economist at Moody’s Analytics, said that the Chinese government has provided big support to these strategic industries and is “reaping the rewards as production takes off and exports – particularly of EVs – surge amid a broader pullback in global demand.”

China to Overtake G7

China is expected to outweigh the G7 as the top contributor to global growth over the next five years, according to Bloomberg calculations based on the International Monetary Fund forecasts.

From this year to 2029, China will account for 21% of the world’s new economic activity, compared to 20% for the G7, and almost double the US’s 12%.

China’s GDP Growth: What it Means for Global Economy
China expected to be the top contributor to global growth by 2029

Fierce Competition

China’s economic growth will certainly influence global economy. Anger in the US and European Union is growing that Chinese cheap goods are overflooding global markets and hindering their domestic industries.

During a recent visit to China, US Treasury Secretary, Janet Yellen, expressed worry regarding Chinese overcapacity, which “can undercut the business of American firms and workers” and firms around the world.

Speaking to reporters, Yellen said she “wouldn’t rule out” imposing trade barriers if Beijing doesn’t heed warnings on overcapacity, reported CNN.

Impacts on Global Economy

Economic and financial markets expert, Dr. Taher Morsi, said that China’s GDP growth reflects “a slowdown in global economic stagnation,” making the expected economic recession unlikely.

Owing to China’s huge industrial capabilities, Beijing offsets the decline in industrial power in the US and Europe, which, in turn, mitigates pressure on developing economies, he told Leaders MENA Magazine.

Morsi added that Chinese economic growth helps in the ongoing recovery of global economy, through easing pressures on supply chains.

“China, as a large contributor to high-tech and advanced industries, pays considerable attention to world welfare, which also plays a significant role in mitigating pressures,” he said.

But this fuels the ongoing trade war between the world’s largest economies. And the US is trying to curtail China’s economic growth, Morsi said. He pointed out to Yellen’s recent trip to China and Washington’s efforts to limit Chinese industrial capacities, in an attempt to “reduce Chinese products’ share in global markets.”

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