While China’s coastal provinces and major cities are recovering from the COVID-19 pandemic, firms in its poorer western and central provinces are falling well behind in metrics such as output and sales revenue, a private survey showed yesterday.
The majority of firms are recovering far more slowly than those in wealthier areas around Beijing, Shanghai and Guangdong, a report from China Beige Book International (CBB) said.
While revenue and profits for the third quarter saw steep declines year-on-year across China, many interior provinces also saw output, domestic orders and sales prices falling from the second quarter as well, according to a quarterly survey of thousands of Chinese firms by the US-based consultancy.
For instance, revenue increased 41 percent quarter-on-quarter for Shanghai and the wealthy eastern provinces of Zhejiang and Jiangsu, but fell by 10 percent in the more remote western regions of Tibet, Gansu, Qinghai and Xinjiang, it said.
“For the corporate elite — large firms and those based in the Big 3 coastal regions — the economy is accelerating... But the rest of China — most firms in most regions — are seeing a far more muted recovery,” CBB chief economist Derek Scissors said in comments issued with the survey.
Last month, China’s industrial output accelerated the most in eight months, while retail sales grew for the first time this year, suggesting the economic recovery is gathering pace as demand starts to improve more broadly from the COVID-19 crisis.
However, the retail recovery is unbalanced and spending on luxury goods, vehicles and electronics is leading the charge, rising faster than food, clothing and other essentials.
While the supply side of China’s economy has shown resilience, a strong and broad rebound in spending is needed for a more meaningful economic recovery. Even though the virus is under control, income and job losses due to the pandemic have made poorer Chinese unwilling or unable to increase spending, keeping a lid on the rebound.
“Higher-income households have probably built up savings, because of the forced reduction in consumption during lockdown, and could now be ready for a spending spree. It is lower-income households that face a longer slog of normalizing their finances,” Gavekal Dragonomics (龍洲經訊) analyst He Wei (何暐) said in a recent report.
The lopsided recovery can also be seen in the auto market.
Sales of luxury vehicles have recovered much quicker than regular ones, and are now almost one-fifth of all vehicles sold.
Regional divergences were also visible in credit, CBB said, with a far higher proportion of companies in the wealthy areas around Beijing, Shanghai and Guangdong accessing capital.
“Borrowing levels stayed flat or fell outright in 4 of 5 non-coastal regions,” CBB said in the report.
Additional reporting by Bloomberg
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