The publication of the Chinese growth numbers of the 2nd quarter confirms the strength of the economic rebound of the country, even if the comparisons are difficult to interpret. The Covid-19 pandemic hurt it as soon as in 2020 1st quarter and the fall of the economic activity has been extremely brutal before progressively rebounding and allowing China being the only one among major world economies to be able to show off a 2.3% growth in 2020. During 2021 1st quarter and 2nd quarter, GDP increased by 18.3% and 7.9% year-on-year. So this slowing is only apparent because it results from a base effect. The comparison between semesters provides a better appreciation of the situation: GDP growth reached then 12.7%.
If we now look at the average growth on two years, we see a slight acceleration from a quarter to another because during the first quarter growth trend was 5% and during the second one, 5.5%. China is not anymore far from having erased the economic consequences of the pandemic thanks to the current catching up. The forecasts made by several international institutions give, for the Chinese economy, a growth between 8 and 8.5% this year, to be compared to the United States and the euro-zone which would grow by respectively around 7% and 4%. So on two years, China would fulfill, despite the pandemic, its objective of a 6% yearly growth rate.
This achievement has not generated an inflationist reaction and the prices increase in 2021 wouldn’t over pass 3%, despite the evolution of the commodities prices. The Chinese currency, the Yuan, has not been more affected by this gap between the Chinese growth and the rest of the world. In reality, its exchange rate against the dollar results more from the financial markets anticipations about the calendar of American monetary policy hardening than from internal factors. The Chinese currency did appreciated itself by near 10% for a year but we see a progressive rebound of the dollar after the declarations of the Federal Reserve chairman about the coming back to a less accommodative policy. This economic and financial environment has incited foreign companies to increase their investments in China. During the 1st quarter, they have represented 58 billion dollars, an increase by 28% year on year. The French companies are present, notably in pharmaceutical products with the projects of Sanofi- Pasteur.
The foreign trade achievements are quite also spectacular. During the 1st half of the year, exports increased by 28% and we saw an acceleration in June caused by the anticipations about, at that time, a better control of the pandemic in the developed countries and by the growing consumption of pharmaceutical products and of tools used for at home working like cell-phones or tablets. Imports grew by 25%. During that period, exchanges with the U.S. and the European Union have increased respectively by 34% and 27%, despite geopolitical tensions and the messages whose France has not the monopoly, denouncing globalization and recommending having shorter supply chains and the repatriation on national territories of essential productions.
The continuation of the growth of the exchanges between China and Europe has generated a true logistic revolution with an unprecedented rise of the rail transport. Investments had been realized under the highly criticized by Western countries program of the New Silk Roads. They have allowed to reducing the tensions on supplies, especially for the goods used to cope with the pandemic. During the first half of the year, 7 400 trains have connected 168 cities including 23 Chinese ones, an increase by 43% year-on-year. 85% of the trains came back to China loaded with European products. The value of the carried goods has passed from 8 billion dollars in 2016 to 56 billion in 2020. The duration of the trip is twice shorter than by sea and that allows to avoiding the congestion of harbors installations and the containers shortage.
If industrial production grew by 7% as an average on two years, it has not been the same regarding household consumption, contrary to the wishes of Chinese leaders who were targeting a rebalancing of the growth in favor of internal consumption. That would allow the country to being less dependent on its foreign trade to reach its growth objectives. Regarding the 1st half of the year, the average yearly consumption growth on two years has only been 4.4%. Two sectors have known an evolution largely above the average, cosmetic expenditures and tourism inside the country. That reveals an evolution of the Chinese society amplified by the pandemic effects on the behavior of families. Women have dedicated a higher share of their salaries to beauty expenses and the families have taken their holidays inside China because in many cases they didn’t have the choice. Cities along the Southern coasts and the Hainan Island have known record affluences. Hainan Airlines forecasts to operate 140 000 flights this summer carrying 18 million passengers, an increase by 40% compared to the previous year. The typical clients are the families where the mother was born in the Eighties and the children in the 2010 years.
China is inscribing itself in the trend all the developed countries have known with the emergence of the services as the growth engine. Behaviors during this crisis have all the chances to continue. Until a recent period, travels inside the country occurred during the Lunar New Year period and consisted to pay a visit to parents and great parents remained in rural areas. Even if this tradition will not disappear, its reach will be reduced due to urbanization and demographic trends. Leisure tourism will take the relay and should constitute a new engine of the China growth. Airlines are ready to pass important orders, especially of wide body aircrafts, to satisfy these new clients.
Regarding environment and the country ability to conciliate its growth objectives and its commitments to reduce CO2 emissions, we don’t have yet at our disposal precise figures for the first half of the year. But data published every year in the British Petroleum Statistical Review for 2020 show that China has not succeeded in dissociating its economic growth with its primary energy consumption, which has increased by 2.1% last year. The result is better for CO2 emissions which have only progressed by 0.6% but this evolution is much too slow. To obtain results as high as its ambitions, the country must both reduce its energy consumption and make its production mode evolving toward less polluting techniques. China emits more than 30% of the world CO2 emissions, the U.S 13.8% and France 0.8%. If Beijing can be satisfied about the way the country went through the sanitary crisis, a lot remains to be done in order it significantly contributes to the solving of the environmental crisis.