Oriental engine: how a revival of business activity in China can accelerate the global economic recovery

The growth of business activity in the services sector of China has accelerated to a maximum over the past 10 years. According to the Caixin analytical agency, in June the corresponding PMI rose to the level of 58.4 points. The value has become the highest since April 2010. 

Traditionally, the PMI reflects the real state of a particular industry. A value above 50 points indicates a positive economic situation, below 50 points - the stagnation of the sector. 

The Chinese services sector has been recovering for the fourth month in a row after a sharp weakening at the end of winter. So, in February, against the backdrop of the introduction of quarantine measures and the massive closure of enterprises due to the coronavirus pandemic, the PMI index of the service sector fell to the lowest level since November 2005 - 26.5 points.

“In June, service providers were still very optimistic about business prospects for the next 12 months. This is due to the fact that the epidemic was taken under control, restrictions were lifted, and the economy was recovering at a fast pace, ”the Caixin report said.

The Chinese government has begun to specifically stimulate sales growth in the service sector due to state support of the population and, in frequency, the payment of various benefits. About this RT told the analyst of the Center for Civilization Strategies Vitaly Volchkov. According to him, an additional driver for increasing domestic sales was a sharp decline in exports.

“China has reduced export opportunities due to the pandemic and a new round of controversy with Washington. The United States was one of the key partners of China, but now, due to a decrease in the number of trade ties, Beijing has to look for new markets. This approach takes time, therefore, China is now trying to cover the resulting export deficit due to the growth of domestic consumption, ”Volchkov explained

In addition to the restoration of the service sector, experts note a positive trend in Chinese industry. According to Caixin, in June China’s manufacturing PMI returned to the beginning of the year and exceeded 51 points. At the same time, in February, the indicator fell to 40.3 points.

According to Vitaliy Volchkov, the relatively rapid recovery of Chinese production in recent months has been due to incentive measures by the government. First of all, we are talking about the payment of monetary compensation to enterprises, as well as tax breaks and loans for businesses.

“The Chinese government has powerful financial instruments, including the possibility of issuing cheap loans to business for development, which allows the country to reorient itself to the domestic market in a fairly short time. In these conditions, by the end of 2020, China's GDP will begin to gradually return to the pre-crisis level. It is believed that according to the results of the year, the country's economy will nevertheless go into plus and grow by about 2%, ”Volchkov explained.

Also, one of the signs of China's economic recovery has been a marked increase in world copper prices. This point of view in conversation with RT was expressed by the expert of the Academy of Finance and Investment Management Gennady Nikolaev.

“Copper is one of the main indicators of the health of the global economy. Over the past three months, the metal has risen in price by 31% and almost completely recaptured the loss of the beginning of spring due to increased demand from Chinese industrialists, ”Nikolaev explained.

To help others

Note that against the backdrop of the exacerbation of the coronavirus pandemic in several states in June, the International Monetary Fund worsened the forecast for a decline in the global economy. According to the organization’s estimates, in 2020 the volume of world GDP may decrease by 5.9%. Earlier, IMF specialists expected a decrease of 3%.

At the same time, a noticeable recovery in the Chinese economy may slow down the global recession and accelerate the recovery of global GDP after the crisis. About this RT told Forex Optimum Leading Analyst Ivan Kapustyansky.

“The Chinese economy is the second in the world after the United States, therefore, the dynamics of China’s GDP plays a huge role in the global economy. Accordingly, if China will recover quickly after the crisis, this will also affect global GDP, ”the expert emphasized.

According to Vitaliy Volchkov, after the end of the global crisis, consumer demand in a number of countries will begin to recover confidently, but not all states will be able to fully satisfy it. The solution to the problem should be the full resumption of Chinese production by this time, the expert said.

“For example, if consumer demand begins to recover rapidly in the EU and the USA, which are the most affected by the virus, then China with its industrial capacities will easily cover it, since Chinese factories are ready to produce a lot of goods of various price categories - for any wallet. At the same time, against the backdrop of the pandemic, the value of the assets of a number of world companies fell markedly. As a result, Chinese investments can support them, since the republic definitely has money for it, ”Volchkov explained.

Moreover, an active increase in trade with China after the pandemic will allow the Russian economy to recover more quickly from the crisis, said Ivan Kapustyansky.

“For Russia, the restoration of demand from the PRC is important. China for Russia is one of the main trading partners, and the volume of mutual trade is growing from year to year. At the same time, Russia sells more goods in China than it buys. Accordingly, in case of further growth of the Chinese economy, demand for Russian products will continue to grow, ”Kapustyansky concluded.