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COVID-19 Pushes China’ GDP into Negative Territory 
April 26, 2020
 
China released its worst-ever quarterly growth figures last Friday. The last time China reported a drop in GDP was in 1976, before quarterly data began, when the economy contracted 1.6% for the full year. The March data, however, showed some signs of recovery, particularly in terms of retail sales, industrial output and fixed-asset investment. In Q120:
 

• GDP shrank 6.8% year-on-year, or 9.8% quarter-on-quarter
• fixed asset investment shrank 16.1% year-on-year
  • narrowing from a 24.5% drop in the first two months
• infrastructure investment fell 19.7% year-on-year
  • moderating from a 30.3% slump in the first two months
• value-added industrial output fell 1.1% year-on-year
  • after sinking 13.5% in the first two months
• retail sales dropped 15.8% year-on-year
  • easing from a 20.5% decline in the first two months

The pickup in March data is a signal that China’s economy is beginning its climb back on track, helped by stimulus efforts which are both starting to take effect and accelerating, as the Ministry of Finance announced that local governments would issue another 1 trillion yuan of special-purpose bonds by the end of May. The local government SPB quota could exceed 4 trillion yuan. Their scope has also been significantly expanded, allowing the money to go towards renovation of older residential areas, public health and other municipal facilities, and especially towards new infrastructure, with a higher cap on the ratio of debt to capital spending, up from 20% to 25%.
 
Figure 1: China’s Investment Slump Moderates in March

Source: National Bureau of Statistics, CEIC

China’s Central Party Committee and State Council issued a set of guiding opinions (link in Chinese) on “setting up a better market-oriented production factor allocation mechanism” on April 9, the first Central Committee document to address factor markets in a systematic, integrated way. The document calls to “remove institutional barriers that hinder the free flow of factors, expand the role of the market in factor allocation, improve factor markets and promote their construction, and marketize the prices, flows and efficient, fair allocation of factors.” The document, which touches on everything from land, labor and capital to technology and data. Many aspects are not new, but bring together key points from disparate documents previously issued by an array of other ministries. The primary highlights, however, are land and labor reform

• exploring and promoting conversion of different land use types in different industries, and increasing land supply for mixed-industry use
• exploring establishment of a national trade mechanism for construction land and supplementary agricultural land
• exploring and promoting mutual recognition of hukou in the Yangtze River Delta, Pearl River Delta and other megacities
• relax hukou restrictions in all cities excluding megacities and pilot household registration based on residence

Part of the reason land reform has progressed relatively slowly in comparison to other areas is that it is foundational to China’s economic model - the transition from land-based development towards a new model of innovation-driven growth is the single most challenging aspect of China’s economic transformation.  China’s Central Party Committee and State Council issued a set of guiding opinions (link in Chinese) on “setting up a better market-oriented production factor allocation mechanism” on April 9, the first Central Committee document to address factor markets in a systematic, integrated way. From: Caixin Global