China’s Economy Rebounds From Virus, but Uncertainty Persists

BEIJING — Economies in Europe and the United States are still languishing as the pandemic forces cities to shut down and shoppers to stay home. But one major country is growing once again: China.

The world’s second-largest economy expanded 3.2 percent from April through June compared to the same period last year, Chinese officials said on Thursday. It was an abrupt turnaround from the January through March quarter, when the economy shrank 6.8 percent, the first contraction that China has acknowledged in nearly half a century.

The recovery points to the authoritarian government’s success in bringing the coronavirus outbreak under control with widespread testing and travel restrictions, after its early missteps delayed the response and fed public anger. But the economic rebound also reflects the government’s continued reliance on spending on the building of highways and rail lines and other infrastructure projects to juice the economy, rather than on domestic consumption.

The approach raises questions about whether China’s economic turnaround is sustainable, and whether it can become the engine needed to drive the global economy out of a slump.

China needs to rev up consumption at home because demand for its exports is slowing as other countries go into recession and unemployment grows globally. Factories in China are already cranking out furniture, consumer electronics and mass-market cars more quickly than consumers at home or abroad want to buy them.

“It looks like there is still a mismatch there — people are not consuming as much as previously,” said Sara Hsu, a visiting scholar in economics at Fudan University in Shanghai.

Sales of groceries and other essentials have stayed strong in China throughout the pandemic. But the people’s willingness to spend on restaurant meals, nights at hotels and other nonessential goods and services has still not fully bounced back.

“The production recovery was much better than that of demand, with insufficient demand for optional goods,” said Stephan Wöllenstein, the chief executive of Volkswagen Group China.

The Shanghai and Shenzhen stock markets have surged 14 percent in the first half of this month, through Wednesday’s close. The rally has been so strong that some analysts have worried it may be the start of another speculative mania like the one in early 2015 that led to a crash late that year and in early 2016.

On the Chinese economy itself, however, a cautious optimism is emerging. “The economy is definitely on the mend,” said Shen Jianguang, the China economist for JD.com, a large Chinese online retailer.

The National Bureau of Statistics also announced on Thursday that industrial production climbed 4.8 percent in June from a year ago, while investment in fixed assets strengthened, especially for infrastructure. Retail sales remained fairly weak, falling 1.8 percent last month compared to a year earlier.

Growth was driven by a ramping up of infrastructure investments. Beijing gave quick approval for local governments to issue bonds to pay for shovel-ready projects like building a subway line in Dalian and renovating a train station in Xi’an. The government also provided quick loans and other subsidies to businesses on the condition that they not lay off workers.

Despite those measures, however, tens of millions of Chinese remain out of work, particularly young Chinese. The government has tried to respond by sharply expanding the number of places in graduate schools this autumn and even redefining employment to include bloggers and professional video gamers.

Millions of factory and service workers routinely quit their jobs each December or January to return to their home villages for extended Lunar New Year celebrations, and then hunt for new jobs when they return to cities in late February or in March. But this year, many of these workers are still unemployed, as eateries, hotels and many export factories have hired back practically no one since the holiday ended.

As in the United States and elsewhere, the slowdown caused by the coronavirus pandemic has widened the gap between the rich and the poor in China. Sales data shows that spending in villages, towns and smaller cities and among lower-income households had faltered, Mr. Shen said. But wealthier households, who are more likely to work from home or to have considerable savings, are still spending money.

Consumption has also stayed fairly strong in big cities, where most of the country’s affluent families live, Mr. Shen said.

China’s appearance of economic strength in the second quarter was also partly a statistical fluke. In April and May, China spent less on imports because the cost of oil, copper and other commodities went down. That meant China had a bigger trade surplus. And a larger trade surplus shows up in countries’ accounting as faster economic growth.

But those prices have jumped back up in the last several weeks, so the country’s economic performance now through September will not reflect the same import savings.

Now the question is whether China’s exports can hold up at a time when many stores are struggling in the West, and particularly in the United States, which has seen a steep increase in new confirmed cases of Covid-19. China’s exports were up only 0.5 percent in June compared to last year.

Steve Denton, the chief executive of Ware2Go, a large warehouse logistics company controlled by UPS, said that from March through mid-July, the company had seen a 17 percent jump in the volume of goods being stored. Many of these goods are from China.

In China, consumption has also been affected by the coronavirus — though sometimes in unexpected ways.

In the spring, families at first rushed to car dealerships because of concerns about the risks of catching the virus from using buses, subways or other forms of mass transit. But with the outbreak nearly completely subsided, people are reconsidering those big-ticket purchases as they look for ways to save in the face of broader weakness throughout the economy.

Jian Xu, a former Daimler and Volkswagen executive who now leads the China automotive practice at the A.T. Kearney consulting firm, said that many families were canceling orders they had placed for new cars.

According to the China Passenger Car Association, dealerships across China sold 6.2 percent fewer cars last month than in June of last year. But part of the drop was because many automakers discounted prices in June of last year to sell a lot of extra cars before tighter emissions standards took effect the following month.

China had a handful of coronavirus outbreaks during late spring, notably one in Beijing in mid-June that triggered lockdowns of more than 50 apartment complexes.

But Beijing only represents about 1.5 percent of China’s population and a slightly larger share of the national economy. The other outbreaks were in much smaller and less affluent communities in the far northeastern corner of the country, with even less economic importance.

Many businesspeople in China are worried that weak demand is putting inexorable pressure on them to cut prices. Their revenues erode as a result, making it hard for them to repay their loans.

Sun Fengling, a seafood trader in Xuzhou, said that she had been forced to cut the price of crayfish by two-thirds in recent weeks. Farmers continued raising crayfish through the spring and now have ponds full of them, but demand has been slow to rebound.

In a glimmer of hope, other harvests are starting to do better. “We’re all sold out of crab,” she said.

Coral Yang in Shanghai contributed research.