China’s GDP Bounces Back With 3.2% Growth

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Significance of China’s GDP numbers

The numbers are being closely watched as China, the first country to brace the Covid-19 storm, progressively restarts its economy.
The figures from Beijing for the second quarter clearly point towards a V-shaped recovery – a sharp fall followed by an equally sharp recovery.
China also effectively sidesteps a technical recession, which is signified by two consecutive quarters of negative growth.

The China’s number indicate that the size of the fiscal package is not such a big determinant.
But instead the quality of spending could hold the key.
Alongside this, the swiftness with which a country manages to bring the epidemic under control is crucial.
According to the IMF, China’s COVID-19 related support policies, including spending, loans and guarantees, Amounted to just 2.5% of GDP.
As compared to 11% for the US, over 20% for Japan, and 34% for Germany.

While the size of the package was relatively small, what mattered is that in China — where one-half of GDPis driven by consumption —
Beijing seems to have rightly focussed on maintaining consumption by attempting to put money in the hands of consumers.
China did this through pre-paid vouchers for specific products and other related measures.

Unlike in China – where the efforts to put money directly into the hands of the people is clearly in sharp contrast to New Delhi’s strategy –
In India, much of the Rs 20 lakh crore Covid-19 economic package announced has been liquidity driven.
It has been primarily focused on pushing banks to extend credit on the back of government guarantees to sectors that include
Small businesses, non-banking financial companies, microfinance institutions and housing finance companies.