Aidan Yao

Macroscope | Coronavirus recovery: China still on course for monetary policy tapering despite new Covid-19 outbreaks

A new wave of Covid-19 cases hit some sectors but not all, as industrial activity and consumption remained strong over the Lunar New Year holiday

The People’s Bank of China is expected to stick to its plans to normalise policy while proceeding carefully to avoid introducing new risks to the recovery

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Staff sort packages at a warehouse of courier service provider Yunda Express in Zhili, Huzhou, eastern Zhejiang Province, on February 8. Following a resurgence in Covid-19 cases, China encouraged people to stay put over the Lunar New Year holiday to reduce the risk of infection, leading to a surge in online retail sales. Photo: Xinhua

Aidan Yao

Published: 3:45pm, 24 Feb 2021Updated: 3:45pm, 24 Feb 2021

Growth momentum moderated in early 2021 after the Chinese economy ending the Year of the Rat on a high note. A new wave of Covid-19 hit the northern part of the country, creating heightened alerts and renewed social restrictions before the Lunar New Year.

Manufacturing and service-sector growth weakened visibly in January, with purchasing managers index levels falling from multi-year highs. Nationwide transport data showed that pre-holiday travel volumes were more than 70 per cent below normal levels as migrant workers were encouraged to stay put and people refrained from taking long-distance holidays.

The renewed outbreak and associated social restrictions are expected to hold back recovery in some service activities and household spending, though only temporarily.

However, the virus outbreak has not had an equal impact on all sectors. With migrant workers staying in towns and cities for the holiday, many businesses and factories were able to remain open. Daily industrial activity data remained solid.

Even though inter-regional travel was curtailed by tighter restrictions, traffic congestion within major cities was at or above normal levels.

02:54

Lunar New Year in China: Locals celebrate the start of the Year of the Ox

With people staying in cities, urban consumption benefited from a release of purchasing power during the holidays. Online retail, car sales and restaurant revenue all grew substantially. Despite capacity restrictions at cinemas, box office sales broke records – at over 7.8 billion yuan (US$1.21 billion) and almost 160 million movie-goers – up 23 per cent from the same period in 2019.