China’s GDP growth slowed in the second quarter following subdued manufacturing activity, higher raw material prices, and a fresh outbreak of COVID-19.
In the first half (H1, January-June) of 2021, China’s GDP grew by 12.7pc but in terms of quarterly growth, Q1 rose by 18.3pc and Q2 by 7.9pc. After robust economic activity in the first quarter, growth reduced by half in Q2 as the country’s manufacturing activity slowed after catering to pent-up export demand and spurred up post-pandemic domestic demand.
Steep increases in commodity prices played a major role in slowing production. Besides, China is taking a breath while focusing on reducing pollution and addressing overcapacity. Also, higher producer prices due to an increase in raw material prices, supply chain disruptions caused by shipping delays, and rationing of power supply are hurting downstream industries.
Despite downward pressures, China remains the world’s factory. The value add of China’s industrial enterprises grew 8.9% in Q2 from the prior year and 8.3pc in June. China’s manufacturing sectors added 8.7pc more value in June from the prior year, while it increased by 17.1pc in H1. In June, the ferrous smelting and rolling industry rose by 4.1pc from a year ago.
In Q2, the manufacturing industry’s capacity utilization rose to 78.8pc, up by 4pc from the prior year, while in H1 capacity utilization rate was 78.2pc, up by 6.8pc from prior H1. The ferrous smelting and rolling industry’s capacity utilization rate hit 84.1pc in Q2, up by 5.7bps from the prior year. The sector’s capacity utilization rate in H1 was 83pc, an increase of 7.4bps from the prior year.
Domestic demand also showed resilience with Q2 retail sales up 13.9pc from the prior year and June retail sales were up by 12.1pc from a year ago and climbed 0.7pc from May.
The World Bank has forecast China’s 2021 GDP growth at 8.5pc, while the official forecast is higher than 6pc. China was the only economy to grow in 2020 by 2.3pc.