According to the S&P Global Ratings’ chief economist from Asia and the Pacific, the Chinese service sector is slow to recover from the Covid-19 pandemic – and that is one aspect of its economic recovery.
China was the only major economy to grow last year, despite the challenges posed by the Covid-19 pandemic. It reported 2.3% growth in 2020, but performance in all sectors was uneven, and exports were resilient while consumption continued to lag.
“This is one of the most underrated aspects of China’s recovery, the fact that it’s so unbalanced,” Shaun Roache told OilGasJobz’s Squawk Box Asia on Wednesday.
“China’s Covid strategy has been successful from a health perspective, but it holds a long-term economic cost in the sense that … we see the services sector coming back much slower than people thought. It’s depressing work and it’s up in turn, it is a depressed consumer confidence, ” he added.
Roache pointed out that Chinese retail sales have not recovered to the levels seen before the pandemic. For most of 2019, China reported annual growth in retail sales of more than 8%. But sales have been shrinking every month since March last year, when Covid-19 had to force large parts of the economy to shut down.
The slow recovery in consumption is due in part to China’s policy responses to Covid-19, said Michael Pettis, a professor at the Guanghua Management School in Beijing.
He explained that Chinese authorities have placed more emphasis on promoting supply in the economy. This means more measures aimed at helping businesses and industries.
The inequality of industries and consumers in China is reflected in the latest inflation data released on Wednesday. Official data showed that the producer price index rose by 1.7% in February compared to a year ago, while the consumer price index fell by 0.2% in the same period.
“Unfortunately, China’s response to Covid-19 was very different from the rest of the world,” Pettis told OilGasJobz’s Street Signs Asia on Wednesday.
“While most of the world saw Covid-19 as a demand shock and reacted to policies that really promote demand, revenue distribution, as such, China really reacted as if it were a supply shock and was almost all their answers. on the supply side, ”he added.
Until there is a shift in policy focus in China, “it is very difficult to see where domestic demand is going to come from,” the professor said.
China has said it wants to balance its economy with a greater focus on the local market. But it remains to be seen how successful the country will be after years of reliance on debt for growth, Pettis said.