WORLD’S BEST CONSUMER STORY

By Andy Rothman

Chinas V-shaped economic recovery continued for a fourth consecutive month in June， led by strong domestic demand. If the novel coronavirus disease（COVID-19） remains under control， China can remain the worlds best consumer story.

The recovery of sales of autos and homes refl ects that middle-class and wealthy consumers have both suffi cient money and enough confidence in the future to spend it. And it was not only big-ticket items that bounced back. Online sales of goods rose 25 percent year on year in June. During the fi rst six months of the year， online sales accounted for one quarter of total retail sales.

It is signifi cant that this healthy economic recovery has come without a dramatic stimulus. Credit growth， for example， has accelerated only modestly. Augmented total outstanding social fi nance， the broadest metric for credit growth， was up 12.9 percent year on year by the end of June， compared to an 11.5-percent growth rate during the same period in 2019， far from the 31-percent growth rate during the same period in 2009， when China implemented a massive stimulus in response to the global financial crisis. This highlights the strength of an organic recovery， and leaves the government with plenty of dry powder if the recovery were to falter.

Unemployment remains a concern， but the absence of social unrest and the continuing rebound in consumer spending suggest that the governments support for workers and businesses has provided a cushion for many who lost their jobs， laying the foundation for an economic recovery. But if services companies in hospitality， entertainment and travel take a long time to return to normal levels of business due to COVID-19 fears， unemployment （or underemployment） among migrant workers will persist， exacerbating income inequality.

In a June update to its World Economic Outlook， the International Monetary Fund（IMF） forecasts that China will be the only major economy to grow on a year-on-year basis in 2020， and the fund forecasts 8.2-percent year-on-year GDP growth for China next year. In my view， the IMFs China forecast growth rate for next year is too high， but I agree with the overall trend.

Whether the V-shaped economic recovery described here continues depends primarily on the Chinese Governments ability to continue keeping the coronavirus under control. At this point， there are reasons to be optimistic.

Because China is a domestic-demand driven economy， there is a low risk that a possible COVID-19-driven global recession， or the ongoing downward spiral in U.S.-China relations might derail the recovery. Last year， domestic consumption accounted for almost 60 percent of GDP growth. So while a collapse in demand for Chinese exports would be a drag on the recovery， it would likely be a modest drag.