Costlier commodities amid COVID underline GDP, biz

China should step up the upgrade of domestic supply chains, optimize its business environment and effect more tax and fee cuts for businesses in order to sustain growth momentum and offset any negative impact of costlier commodities on the economy, experts and industry insiders said.

On April 16, the National Bureau of Statistics announced China's first-quarter GDP growth was 18.3 percent year-on-year, indicating strength in the recovery from the COVID-19 pandemic.

Excluding the low-base factor, most economists believe that China's economy is moving steadily on the right path to recovery.

Yet, some noted the first-quarter figures, though impressive, indicate the recovery is still uneven sector-wise. Recovery of both manufacturing and consumption has not returned to the pre-COVID-19 level yet, they said.

On the consumption side, total retail sales of consumer goods stood at 10.52 trillion yuan ($1.64 trillion) for the first quarter, up almost 34 percent year-on-year, or about 4.2 percent of annual growth by two-year average, which was still below the pre-pandemic level.

Feng Ming, a senior researcher at the Chinese Academy of Social Sciences, believes that the recovery of consumption is affected by lower growth of household income and people's relatively constrained willingness to buy.

The country's per capita disposable income grew by a mere 13.7 percent year-on-year, while national average per capita consumption expenditure increased by 17.6 percent year-on-year, both below the GDP growth rate.

Investment also sounded a note of caution. Investment in manufacturing grew by 29.8 percent year-on-year for the first quarter, yet contracted by 2 percent by two-year average, which indicates that investment in manufacturing "is not back to the pre-COVID-19 level yet", according to the NBS spokesperson.

One challenge faced by manufacturing is the recent rise of commodity prices. Peng Wensheng, chief economist with China International Capital Corp, argued in a note last month that instead of seeing recent price rises as "imported inflation", the price hike should be seen as more likely to have been brought by supply shocks.

The spread of the pandemic globally has impeded movement of commodities, and also increased businesses' willingness to keep more raw materials in stock.

While vaccines have been widely rolled out in developed countries, the pandemic situation in many other countries worldwide is still fraught, Peng said.

Therefore, with the United States' stimulus going big, risks of stagnation are also rising. He also warned that there can be other "unforeseen" risks like price rises in other sectors.

Long Shaobo, deputy director of the Center for Public Economy and Public Policy at Chongqing University, suggested that immediacy is needed in accelerating industrial upgrade domestically.

More efforts should be rolled out to reduce operational costs for businesses, Long said.

He added that smaller businesses are more vulnerable as they face supply shocks, particularly when they are wary of a possible slower credit expansion and liquidity.

"Tax and fee cuts shall be kept at an appropriate level so that the overall cost for businesses, downstream businesses in particular, can be reduced. This will help them better cushion the impact brought by rising commodity prices and prevent production costs from soaring," Long said on Sunday.

China's Ministry of Finance has recently announced that from April 1 to Dec 31, 2022, small-scale value-added tax payers with monthly sales revenue of 150,000 yuan or less will be exempt from value-added tax or VAT.

The General Office of the State Council issued a decree in mid-April urging reform for transforming government functions and streamlining administration. Both Peng and Long see reforms as laudable steps to facilitate business operations this year.

Economic structural changes, Long said, shall take place more rapidly. In particular, the role of consumption shall be boosted.

"With consumption playing a bigger role in catalyzing growth, the rising cost of investment will not put that much pressure on broader economy."

In January, the International Monetary Fund projected China's 2021 GDP growth at 8.1 percent year-on-year. It then revised the projection upward to 8.4 percent earlier this month.

A steady and dynamic economic recovery is widely anticipated for the quarters to come, as such growth will be conducive to both domestic and global growth.

As Robin Xing, chief China economist at Morgan Stanley, said in a recent panel discussion at the Tsinghua PBCSF Global Finance Forum, it is important for China to grow robustly so that the benefits of its growth can be shared more widely with other countries.